Sales Part X Page |1
LEVY HERMANOS, INC., plaintiff and appellant, vs. LAZARO BLAS
GERVACIO, defendant and appellee.
1.INSTALLMENT SALES; ARTICLE 1454-A OF THE CIVIL CODE (ACT No.
4122).—In Macondray & Co. vs. De Santos (33 Off. Gaz., 2170), we held that
"in order to apply the provisions of article 1454-A of the Civil Code it must
appear that there was a contract for the sale of personal property payable in
installments and that there has been a failure to pay two or more
installments." The contract, in the instant case, while a sale of personal
property, is not, however, one on installments, but on straight term, in which
the balance, after payment of the initial sum, should be paid in its totality at
the time specified in the promissory note. The transaction is not, therefore,
the one contemplated in Act No. 4122 and accordingly the mortgagee is not
bound by the prohibition therein contained as to its right to the recovery of
the unpaid balance.
2.ID.; ID.—Undoubteclly, 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. Theoretically, perhaps, there
is no difference between paying the price in two installments and paying the
same partly in cash and partly in one installment, 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.
APPEAL from a judgment of the Court of First Instance of Manila.
Montemayor, J.
The facts are stated in the opinion of the court.
Felipe Caniblas for appellant.
Abreu, Lichauco & Picazo for appellee. Hermanos Inc. vs. Gervacio, 69 Phil.
52, No. 46306 October 27, 1939
MORAN, J.:
On February 9-4, 1938, plaintiff filed a complaint in the Court of First
Instance of Manila, which substantially recites the following facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro
Blas Gervacio, a Packard car. Defendant, after making the initial payment,
executed a promissory note for the balance of P2,400, payable on or before
June 15, 1937, with interest at 12 per cent per annum, to secure the
payment of the note, he mortgaged the car to the plaintiff. Defendant failed
to pay the note it its maturity. Wherefore, plaintiff foreclosed the mortgage
and the car was sold at public auction, at which plaintiff was the highest
bidder for P1,800. The present action is for the collection of the balance of
P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this
admission, the parties submitted the case for decision. The lower court
applied, the provisions of Act No. 4122, inserted as articles 1454-A of the
Civil Code, and rendered judgment in favor of the defendant. Plaintiff
appealed.
Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property payable in installments
shall confer upon the vendor the right to cancel the sale or foreclose
the mortgage if one has been given on the property, without
reimbursement to the purchaser of the installments already paid, if
there be an agreement to this effect.
However, if the vendor has chosen to foreclose the mortgage he
shall have no further action against the purchaser for the recovery of
any unpaid balance owing by the same and any agreement to the
contrary shall be null and void.
In Macondray and Co. vs. De Santos  (33 Off. Gaz., 2170), we held that "in
order to apply the provisions of article 1454-A of the Civil Code it must
appear that there was a contract for the sale of personal property payable in
installments and that there has been a failure to pay two or more
installments." The contract, in the instant case, while a sale of personal
property, is not, however, one on installments, but on straight term, in which
the balance, after payment of the initial sum, should be paid in its totality at
 Sales Part X Page |2

the time specified in the promissory note. The transaction is not is not,
therefore, the one contemplated in Act No. 4122 and accordingly the
mortgagee is not bound by the prohibition therein contained as to the right
to the recovery of the unpaid balance.

Undoubtedly, the law is aimed at those sales where the price is payable in
several installments, for, generally, it is in these cases that partial payments
consist in relatively small amounts, constituting thus a great temptation for
improvident purchasers to buy beyond their means. There is no such
temptation where the price is to be paid in cash, or, as in the instant case,
partly in cash and partly in one term, for, in the latter case, the partial
payments are not so small as to place purchasers off their guard and delude
them to a miscalculation of their ability to pay. The oretically, perhaps, there
is no difference between paying the price in tow installments, in so far as the
size of each partial payment is concerned; but in actual practice the
difference exists, for, according to the regular course of business, in
contracts providing for payment of the price in two installments, there is
generally a provision for initial payment. But all these considerations are
immaterial, the language of the law being so clear as to require no
construction at all.lâwphi1.nêt

The suggestion that the cash payment made in this case should be
considered as an installment in order to bring the contract sued upon under
the operation of the law, is completely untenable. A cash payment cannot be
considered as a payment by installment, and even if it can be so considered,
still the law does not apply, for it requires non-payment of two or more
installments in order that its provisions may be invoked. Here, only one
installment was unpaid.

Judgment is reversed, and the defendant-appellee is hereby sentenced to

pay plaintiff-appellant the sum of P1,600 with interest at the rate of 12 per
cent per annum from June 15, 1937, and the sum of P52.08 with interest at
the rate of 6 per cent from the date of the filing of the complaint, with costs
in both instances against the appellee.

DELTA MOTOR SALES CORPORATION, plaintiff-appellee, vs. NIU
KIM DUAN and CHAN FUE ENG, defendants-appellants.
Civil Law; Contracts; Sales on installments of personal property; Validity of
stipulation that installments paid shall not be returned to vendee.—
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
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:
Sales Part X Page |3
'(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;
x x x  x x x
"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
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 enforcement of its contract with defendants-appellants. This is shown from
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
Sales Part X Page |4
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
the fact that its 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.

[No. L-10789. May 28, 1957]
AMADOR TAJANLANGIT, ET AL., plaintiffs and appellants, vs.
SOUTHERN MOTORS, INC., ET AL., defendants and appellees.
SALE; PERSONAL PROPERTY SOLD ON INSTALLMENTS; WHEN VENDOR
MAY RECOVER THE UNPAID BALANCE OF THE PURCHASE PRICE.—In a
contract of sale of personal property the price of which is payable in
installments, secured by a mortgage on the goods sold, the vendor who
chooses to exact fulfillment of the obligation to pay is not limited to the
proceeds of the sale, on execution, of the mortgaged goods. The vendor
may still recover from the purchaser the unpaid balance of the price, if any.
APPEAL from a judgment of the Court of First Instance of Iloilo. Pelayo, J.
The facts are stated in the opinion of the Court.
Almacén & Almacén 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
Sales Part X Page |5
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;
Sales Part X Page |6
(2) Cancel the sale, should the vendee's failure to pay cover two or
more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void. (New Civil Code.)
Appellants would invoke the last paragraph. But there has been no
foreclosure of the chattel mortgage nor a foreclosure sale. Therefore the
prohibition against further collection does not apply.
At any rate it is the actual sale of the mortgaged chattel in
accordance with section 14 Act No. 1508 that would bar the creditor
(who chooses to foreclose) from recovering any unpaid balance.
(Pacific Com. Co. vs.De la Rama, 72 Phil. 380.) (Manila Motor
Co. vs. Fernandez, 99 Phil., 782.).
It is true that there was a chattel mortgage on the goods sold. But the
Southern Motors elected to sue on the note exclusively, i.e. to exact
fulfillment of the obligation to pay. It had a right to select among the three
remedies established in Article 1484. In choosing to sue on the note, it was
not thereby limited to the proceeds of the sale, on execution, of the
mortgaged good.2
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. . . .
 Sales Part X Page |7

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.
 Sales Part X Page |8

retain permanent possession of the vehicle, as it did in fact. 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.

PETITION for review of the decision of the Intermediate Appellate Court.

The facts are stated in the opinion of the Court.

No. L-67181. November 22, 1985.*
     Pamplona, Genito & Valdezco Law Office for petitioners.
SPOUSES RESTITUTO NONATO and ESTER NONATO, petitioners, us.
THE HONORABLE INTERMEDIATE APPELLATE COURT and      Dinglasan Law Office for private respondent. .
INVESTOR'S FINANCE CORPORATION, respondents.
ESCOLIN, J.:
Civil Law; Sales; Sale of personal property in installments; Article 1484 of the
Civil Code, interpreted; Remedies of a seller where the buyer fails to pay
The issue posed in this petition for review of the decision of the respondent
personal property in installments is alternative, not cumulative, that the
appellate court is whether a vendor, or his assignee, who had cancelled the
exercise of one would bar the exercise of the others.—The meaning of the
sale of a motor vehicle for failure of the buyer to pay two or more of the
aforequoted provision has been repeatedly enunciated in a long line of cases.
stipulated installments, may also demand payment of the balance of the
Thus: "Should the vendee or purchaser of a personal property default in the
purchase price.
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 The pertinent facts are summarized by the respondent appellate court as
mortgage on the purchased personal property, if one was constituted. These follows:
remedies have been recognized as alternative, not cumulative, that the
exercise of one would bar the exercise of the others." On June 28, 1976, defendant spouses Restituto Nonato and
Ester Nonato purchased one (1) unit of Volkswagen
Same; Same; Cancellation of contract of sale; Possession by the assignee of Sakbayan from the People's Car, Inc., on installment basis.
a car purchased in installments where the buyer defaulted in payment To secure complete payment, the defendants executed a
thereof bars it from exacting from the defaulted buyer the balance of the promissory note (Exh. A or 1) and a chattel mortgage in
purchase price of the vehicle repossessed.—The receipt issued by the favor of People's Car, Inc, (Exh. B or 2). People's Car, Inc.,
respondent company to the Nonatos when it took possession of the vehicle assigned its rights and interests over the note and mortgage
states that the vehicle could be redeemed within fifteen [15] days. This could in favor of plaintiff Investor's Finance Corporation (FNCB)
only mean that should petitioners fail to redeem the car within the aforesaid Finance). For failure of defendants to pay two or more
period by paying the balance of the purchase price, the company would

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:
Sales Part X Page |9
(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:
 S a l e s P a r t X P a g e | 10

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.

LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees, vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D.
SEBASTIAN and JOSE SAN AGUSTIN, in his capacity as Sheriff,
defendants appellants.
Sales; Remedy of vendor under Art. 1484 of the new Civil Code in case buyer
of personal property on installment fails to pay is mutually exclusive.—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. Whichever right the vendor elects, he
cannot avail of the other, these remedies being alternative, not cumulative.
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. 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
S a l e s P a r t X P a g e | 11
himself without the property and still owing practically the full amount of his
original indebtedness.
Same; Mortgage; Under Art 1484 of the new Civil Code the vendor of
personal property sold on installment who chooses the remedy of foreclosure
of the chattel mortgage is limited to the foreclosure of the items sold only
and not to other items not subject of the sale although also given as
additional security. The foreclosure of the latter items is null and void.—
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.
Same; Same; Same.—In the case of Cruz v. Filipinas Investment & Finance
Corporation, 23 SCRA 791, this Court ruled that the vendor of personal
property sold on the installment basis is precluded, after foreclosing the
chattel mortgage on the thing sold, from having a recourse against the
additional security put up by a third party to guarantee the purchaser’s
performance of his obligation on the theory that to sustain the same would
overlook the fact that if the guarantor should be compelled to pay the
balance of the purchase price, said guarantor will in turn be entitled to
recover what he has paid from the debtor-vendee, and ultimately it will be
the latter who will be made to bear the payment of the balance of the price,
despite the earlier foreclosure of the chattel mortgage given by him, thereby

indirectly subverting the protection given the latter. Consequently, the
additional mortgage was ordered cancelled. Said ruling was reiterated in the
case of Pascual v. Universal Motors Corporation, 61 SCRA 121. Ridad vs.
Filipinas Investment and Finance Corp., 120 SCRA 246, No. L-39806 January
27, 1983
DE CASTRO, J:
Appeal from the decision of the Court of First Instance of Rizal, Branch I, in
Civil Case No. 9140 for annulment of contract, originally filed with the Court
of Appeals but was subsequently certified to this Court pursuant to Section 3
of Rule 50 of the Rules of Court, there being no issue of fact involved in this
appeal.
The materials facts of the case appearing on record may be stated as
follows: On April 14, 1964, plaintiffs purchased from the Supreme Sales arid
Development Corporation two (2) brand new Ford Consul Sedans complete
with accessories, for P26,887 payable in 24 monthly installments. To secure
payment thereof, plaintiffs executed on the same date a promissory note
covering the purchase price and a deed of chattel mortgage not only on the
two vehicles purchased but also on another car (Chevrolet) and plaintiffs'
franchise or certificate of public convenience granted by the defunct Public
Service Commission for the operation of a taxi fleet. Then, with the
conformity of the plaintiffs, the vendor assigned its rights, title and interest
to the above-mentioned promissory note and chattel mortgage to defendant
Filipinas Investment and Finance Corporation.
Due to the failure of the plaintiffs to pay their monthly installments as per
promissory note, the defendant corporation foreclosed the chattel mortgage
extra-judicially, and at the public auction sale of the two Ford Consul cars, of
which the plaintiffs were not notified, the defendant corporation was the
highest bidder and purchaser. Another auction sale was held on November
16, 1965, involving the remaining properties subject of the deed of chattel
mortgage since plaintiffs' obligation was not fully satisfied by the sale of the
aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to
operate five units of taxicab service was sold for P8,000 to the highest
bidder, herein defendant corporation, which subsequently sold and conveyed
the same to herein defendant Jose D. Sebastian, who then filed with the
Public Service Commission an application for approval of said sale in his
favor.
S a l e s P a r t X P a g e | 12
On February 21, 1966, plaintiffs filed an action for annulment of contract
before the Court of First Instance of Rizal, Branch I, with Filipinas
Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose San
Agustin, as party-defendants. By agreement of the parties, the case was
submitted for decision in the lower court on the basis of the documentary
evidence adduced by the parties during the pre-trial conference. Thereafter,
the lower court rendered judgment as follows:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court
declares the chattel mortgage, Exhibit "C", to be null and
void in so far as the taxicab franchise and the used
Chevrolet car of plaintiffs are concerned, and the sale at
public auction conducted by the City Sheriff of Manila
concerning said taxicab franchise, to be of no legal
effect.1äwphï1.ñët  The certificate of sale issued by the City
Sheriff of Manila in favor of Filipinas Investment and Finance
Corporation concerning plaintiffs' taxicab franchise for
P8,000 is accordingly cancelled and set aside, and the
assignment thereof made by Filipinas Investment in favor of
defendant Jose Sebastian is declared void and of no legal
effect. (Record on Appeal, p. 128).
From the foregoing judgment, defendants appealed to the Court of Appeals
which, as earlier stated, certified the appeal to this Court, appellants
imputing to the lower court five alleged errors, as follows:
I
THE LOWER COURT ERRED IN DECLARING THE CHATTEL
MORTGAGE, EXHIBIT "C", NULL AND VOID.
II
THE LOWER COURT ERRED IN HOLDING THAT THE SALE
AT PUBLIC AUCTION CONDUCTED BY THE CITY SHERIFF
OF MANILA CONCERNING THE TAXICAB FRANCHISE IS OF
NO LEGAL EFFECT.
III

THE LOWER COURT ERRED IN SETTING ASIDE THE
CERTIFICATE OF SALE ISSUED BY THE CITY SHERIFF OF
MANILA IN FAVOR OF FILIPINAS INVESTMENT AND
FINANCE CORPORATION COVERING PLAINTIFFS' TAXICAB
FRANCHISE.
IV
THE LOWER COURT ERRED IN DECLARING VOID AND OF
NO LEGAL EFFECT THE ASSIGNMENT OF THE TAXICAB
FRANCHISE MADE BY FILIPINAS INVESTMENT AND
FINANCE CORPORATION IN FAVOR OF DEFENDANT.
V
THE LOWER COURT (sic) IN NOT DECIDING THE CASE IN
FAVOR OF THE DEFENDANTS. Appellants' Brief, pp. 9 & 10)
From the aforequoted assignment of errors, the decisive issue for
consideration is the validity of the chattel mortgage in so far as the franchise
and the subsequent sale thereof are concerned.
The resolution of said issue is unquestionably governed by the provisions of
Article 1484 of the Civil Code which states:
Art. 1484. In a contract of sale of personal property the price
of which is payable in installments, the vendor may exercise
y of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail
to pay;
(2) Cancel the sale, should the vendee's failure to pay cover
two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one
has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary
shall be void.
S a l e s P a r t X P a g e | 13
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. 3The 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
 S a l e s P a r t X P a g e | 14

concerning other properties which are separate and distinct from those IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with
which were sold on installment. This would indeed be contrary to public costs against the appellants.
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.

EUTROPIO ZAYAS, JR., petitioner, vs. LUNETA MOTOR COMPANY
and HONORABLE JUAN O. REYES, Presiding Judge of the Court of
First Instance of Manila, Branch XXI, respondents.
Civil Law; Foreclosure of chattel mortgage; Agency; Principal and agent
relationship; Being a collecting agent of a company proves the nature of
relationship between principal and agent.—The Escaño Enterprises of
Cagayan de Ore City was an agent of Luneta Motor Company. A very
significant evidence which proves the nature of the relationship between
Luneta Motor Company and Escaño Enterprises is Annex "A. of the
petitioner's OPPOSITION TO URGENT MOTION FOR RECONSIDERATION.
(Original Record, p. 36) Annex "A" is a certification from the cashier of
Escaño Enterprises on the monthly installments paid by Mr. Eutropio Zayas,
Jr. In the certification, the promissory note in favor of Luneta Motor
Company was specifically mentioned. There was only one promissory note
executed by Eutropio Zayas, Jr. in connection with the purchase of the motor
vehicle. The promissory note mentioned in the certification refers to the
promisorry note executed by Eutropio Zayas, Jr. in favor of respondent
Luneta Motor Company. x x x Escaño Enterprises, a dealer of respondent
S a l e s P a r t X P a g e | 15
Luneta Motor Company, was merely a collecting-agent as far as the purchase
of the subject motor vehicle was concerned. The principal and agent
relationship is clear.
Same; Same; Sale of personal property on installment basis; Assignment of
rights to the sale of a motor vehicle by a firm to another company does not
change nature of transaction between the parties; Assignee had no better
rights than the assignor.—But even assuming that the "distinct and
independent entity" theory of the private respondent is valid, the nature of
the transaction as a sale of personal property on installment basis remains.
When, therefore, Escaño Enterprises, assigned its rights vis-a-vis the sale to
respondent Luneta Motor Company, the nature of the transaction involving
Escaño) Enterprises and Eutropio Zayas, Jr. did not change at all. As
assignee, respondent Luneta Motor Company had no better rights than
assignor Escaño Enterprises under the same transaction. The transaction
would still be a sale of personal property in installments covered by Article
1484 of the New Civil Code. To rule otherwise would pave the way for
subverting the policy underlying Article 1484 of the New Civil Code, on the
foreclosure of chattel mortgages over personal property sold on installment
basis.
Same; Same; Same; Foreclosure and sale of mortgaged chattel bars further
recovery by vendor of outstanding obligation of purchaser not satisfied by
the sale.—"x x x 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 pur-chaser's outstanding obligation not so satisfied by the
sale Zayas, Jr. vs. Luneta Motor Company, 117 SCRA 726, No. L-30583
October 23, 1982
GUTIERREZ, JR., J.:
Eutropio Zayas, Jr., filed this petition for review by certiorari to secure a
reversal of the respondent court's orders which remanded Civil Case No.
74381 for further proceedings instead of affirming the city court's order of
dismissal,
The petitioner Eutropio Zayas, Jr, purchased on installment basis a motor
vehicle described as ONE (1) UNIT FORD THAMES FREIGHTER W/PUJ BODY
with Engine No. 400E-127738 and Chassis No. 400E-127738 from Mr. Roque
Escaño of the Escaño Enterprises in Cagayan de Oro City, dealer of

respondent Luneta Motor Company, under the following terms and
conditions:
Selling price P7,500.00
Financing charge P1,426.82
Total Selling P8,926.82
Price
Payable on P1,006.82
Delivery
Payable in 24 P7,920.00
months at 12%
interest per
annum
The motor vehicle was delivered to the petitioner who 1) paid the initial
payment in the amount of P1,006.82; and 2) executed a promissory note in
the amount of P7,920.00, the balance of the total selling price, in favor of
respondent Luneta Motor Company. The promissory note stated the amounts
and dates of payment of twenty-six installments covering the P7,920.00
debt. Simultaneously with the execution of the promissory note and to
secure its payment, the petitioner executed a chattel mortgage on the
subject motor vehicle in favor of the respondent. After paying a total amount
of P3,148.00, the petitioner was unable to pay further monthly installments
prompting the respondent Luneta Motor Company to extra-judicially
foreclose the chattel mortgage (Annex "A" to Answer, Original Record, p.
10, supra). The motor vehicle was sold at public auction with the respondent
Luneta Motor Company represented by Atty. Leandro B. Fernandez as the
highest bidder in the amount of P5,000.00 (Annex "B" to Answer, Original
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 Company, the
latter filed Civil Case No. 165263 with the City Court of Manila for the
recovery of the balance of P1,551.74 plus interests.
Luneta Motor Company alleged in its complaint that defendant Eutropio
Zayas, Jr. executed a promissory note in the amount of P7,920.00 in its
S a l e s P a r t X P a g e | 16
favor; that out of the P7,920.00, Eutropio Zayas, Jr. had paid only P6,368.26
plus interest up to the date of the sale at public auction of the motor vehicle;
that the balance of P1,551.74 plus interest of 12% thereon from that date
had already become due and payable but despite repeated demands to pay
the same, Eutropio Zayas, Jr., refused and failed to pay.
In his answer with affirmative defenses and counterclaim, Eutropio Zayas, Jr.
admitted having executed the promissory note for the monthly payments, on
a Ford Thames vehicle bearing Engine No. 400E-127738 which he purchased
from the Luneta Motor Company but he denied his alleged outstanding
liability of P1,551.74 plus interest thereon ... the said obligation if there was
any, had already been discharged either by payment or by sale in public
auction of the said motor vehicle as evidenced by a Notice of Sale marked as
Annex "A" and Certificate of Sale marked as Annex "B"; (Answer, p. 7,
Original Record). He alleged as affirmative defenses, among others: 1) that
the plaintiff has no cause of action against him; and 2) that pursuant to
Article 1484 of the New Civil Code and the case of Pacific Commercial Co. v.
De La Rama, (72 Phil. 380) his 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 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
S a l e s P a r t X P a g e | 17
After going over the pleadings in this case, more particularly
the complaint and the answer to the complaint filed with the
City Court of Manila, this Court is of the impression that the
case at bar may not be decided merely, as the City Court
had done, on the question of law since the presentation of
evidence is necessary to adjudicate the questions involved.
WHEREFORE, this case is hereby remanded to the court of
origin for further proceedings. (pp. 82-83, Original Record)
Hence, this petition.
Petitioner Eutropio Zayas, Jr. now maintains::
That Respondent Court of First Instance
erred:
1. IN HOLDING THAT THE QUESTION OF LAW CANNOT BE
DECIDED SINCE PRESENTATION OF EVIDENCE IS
NECESSARY- REGARDING THE QUESTION OF RECOVERY OF
THE DEFICIENCY AMOUNT IN A CHATTEL MORTGAGE
AFTER SELLING IT IN A PUBLIC AUCTION;
2. IN ORDERING THE REMAND OF THE CASE TO THE CITY
COURT FOR FURTHER PROCEEDINGS TAKEN BY THE
RESPONDENT FROM THE CITY COURT TO THE COURT OF
FIRST INSTANCE, BRANCH XXI, MANILA; and
3. IN NOT DISMISSING THE APPEAL TAKEN BY THE
PRIVATE RESPONDENT FROM THE CITY COURT TO THE
COURT OF FIRST INSTANCE.
The main defense of respondent Luneta Motor Company is that Escano
Enterprises, Cagayan de Oro City from which petitioner Eutropio Zayas, Jr.
purchased the subject motor vehicle was a distinct and different entity; that
the role of Luneta Motor Company in the said transaction was only to finance
the purchase price of the motor vehicle; and that in order to protect its
interest as regards the promissory note executed in its favor, a chattel
mortgage covering the same motor vehicle was also executed by petitioner
Eutropio Zayas, Jr. In short, respondent Luneta Motor Company maintains
that the contract between the company and the petitioner was only an
 S a l e s P a r t X P a g e | 18

ordinary loan removed from the coverage of Article 1484 of the New Civil
10645 February 27, 1967 100.00
Code.
10704 March 13,1967 100.00
The respondent's arguments have no merit.
10749 March 22, 1967 60.00
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 10132 March 30,1967 100.00
relationship between Luneta Motor Company and Escaño Enterprises is
Annex "A. of the petitioner's OPPOSITION TO URGENT MOTION FOR 10788 April 8, 1967 100.00
RECONSIDERATION. (Original Record, p. 36) Annex "A" is a Certification
from the cashier of Escano Enterprises on the monthly installments paid by 10795 April 11, 1967 100.00
Mr. Eutropio Zayas, Jr. In the certification, the promissory note in favor of
Luneta Motor Company was specifically mentioned. There was only one 10827 April 18, 1967 100.00
promissory note executed by Eutropio Zayas, Jr. in connection with the
10934 May 10, 1967 100.00
purchase of the motor vehicle. The promissory note mentioned in the
certification refers to the promissory note executed by Eutropio Zayas, Jr. in
10991 May 26,1967 100.00
favor of respondent Luneta Motor Company. Thus:
11105 June 19,1967 150.00
CERTIFICATION
  P3,148.00  
This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid
from us the following, of his FORD THAMES BEARING Engine
ESCAÑO ENTERPRISES
No. 400E-127738, promissory note dated October 6, 1966.
Viz:
(SGD.) EMELITA H. BACULIO

ESCAÑO O.R DATE RECEIVED AMOUNT Cashier

NUMBER
Escano Enterprises, a dealer of respondent Luneta Motor Company, was
merely a collecting-agent as far as the purchase of the subject motor vehicle
09998 October 5, 1966 P1,000.00
was concerned. The principal and agent relationship is clear.
10064 October 20, 1966 242.00
But even assuming that the "distinct and independent entity" theory of the
10188 November 8, 1966 166.00 private respondent is valid, the nature of the transaction as a sale of
personal property on installment basis remains. When, therefore, Escaño
10355 December 12,1966 400.00 Enterprises, assigned its rights vis-a-vis the sale to respondent Luneta Motor
Company, the nature of the transaction involving Escano Enterprises and
LMC C.R. #40031 January 19, 1967 270.00 Eutropio Zayas, Jr. did not change at all. As assignee, respondent Luneta
Motor Company had no better rights than assignor Escaño Enterprises under
10536 February 1, 1967 60.00 the same transaction. The transaction would still be a sale of personal
property in installments covered by Article 1484 of the New Civil Code. To
 S a l e s P a r t X P a g e | 19

rule otherwise would pave the way for subverting the policy underlying property, the purchase price of which is
Article 1484 of the New Civil Code, on the foreclosure of chattel mortgages payable in installments, has the right to
over personal property sold on installment basis. cancel the sale or foreclose the mortgage if
one has been given on the property.
ART. 1484. In a contract of sale of personal property the Whichever right the vendor elects he need
price of which is payable in installments, the vendor may not return to the purchaser the amount of
exercise any of the following remedies: the installments already paid, "if there be an
agreement to that effect". Furthermore, if
xxx xxx xxx the vendor avails himself of the right to
foreclose the mortgage this amendment
prohibits him from bringing an action
xxx xxx xxx
against the purchaser for the unpaid
balance. (Cruz v. Filipinas Investment &
(3) Foreclose the chattel ;mortgage on the thing sold, if one Finance Corporation, 23 SCRA 791)
has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have
Our findings and conclusions are borne out by the records available to the
no further action against the purchaser to recover any
respondent court. There was no necessity for the remand of records to the
unpaid balance of the price. Any agreement to the contrary
city court for the presentation of evidence on the issue raised in the case.
shall be void.

WHEREFORE, the instant petition is hereby granted. The orders remanding

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

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

NORTHERN MOTORS, INC., plaintiff-appellant, vs. CASIANO
SAPINOSO and "JOHN DOE", defendants-appellees.
Sale; Sale by installments; Effect of payment of installment before
foreclosure sale.—The lower court erred in concluding that the legal effect of
the filing of the action was to bar seller-mortgagee from accepting further
payments on the promissory note. That the ultimate object of the action of
replevin is the foreclosure of the chattel mortgage, is of no moment, f or it is
the f act of f oreclosure and actual sale of the mortgaged chattel that bar
S a l e s P a r t X P a g e | 20
further recovery by the vendor of any balance on the purchaser's
outstanding obligation not satisfied by the sale. The voluntary payment of
the installment by the buyermortgagor is valid and not recoverable under the
restrictive provision of Article 1484(3) of the Civil Code because there is no
occasion at this stage to apply the said article, there being no foreclosure
sale yet resulting in a deficiency. Northern Motors, Inc. vs. Sapinoso, 33
SCRA 356, No. L-28074 May 29, 1970
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
S a l e s P a r t X P a g e | 21
could not be used, he paid P700.00 to the plaintiff upon the latter's
assurance that the car would be fixed, but that instead of having the car
fixed, the plaintiff, in bad faith, filed the present complaint. The defendant
prayed that the complaint be dismissed and that the plaintiff be ordered to
return the car to him. He stated in his prayer that he would be very much
willing to pay the car in a compromise agreement between him and the
plaintiff.
After trial, the court a quo, in its decision dated April 4, 1967, held that
defendant Sapinoso having failed to pay more than two (2) installments,
plaintiff-mortgagee acquired the right to foreclose the chattel mortgage,
which it could avail of — as it has done in the present case — by filing an
action of replevin to secure possession of the mortgaged car as a preliminary
step to the foreclosure sale contemplated in the Chattel Mortgage Law; and
that the foreclosure of the chattel mortgage and the recovery of the unpaid
balance of the price are alternative remedies which may not be pursued
conjunctively, so that in availing itself of its right to foreclose the chattel
mortgage, the plaintiff thereby renounced whatever claim it may have had
on the promissory note, and, therefore, the plaintiff has no more right to the
collection of the attorney's fees stipulated in the promissory note, and should
return to defendant Sapinoso the sum of P1,250.00 which the plaintiff had
received from the latter after having filed the present case on July 22, 1966,
and elected to foreclose the chattel mortgage. The dispositive portion of the
decision reads:
WHEREFORE, the Court finds that the plaintiff has the right
to the possession of the OPEL KADETT two-door station
wagon Model 3464-91.5, with engine No. 
10-0354333, and the delivery thereof to the plaintiff is
hereby ratified and confirmed but said party is sentenced to
pay to the defendant the sum of P1,250, with legal interest
on P500 from August 22, 1966 and or P750 from September
27, 1966, until fully paid, without any pronouncement as to
costs.
In this appeal plaintiff-appellant claims that the court a quo  erred in ordering
it to reimburse to defendant-appellee Sapinoso the sum of P1,250.00 which
the latter had paid. It contends that under Article 1484 of the Civil Code it is
the exercise, not the mere election, of the remedy of foreclosure that bars
the creditor from recovering the unpaid balance of the debt; that what the
said Article 1484 prohibits is "further action" to collect payment of the
deficiency after the creditor has foreclosed the mortgage; and that in paying
 S a l e s P a r t X P a g e | 22

plaintiff-appellant the sum of P1,250.00 before defendant-appellee Sapinoso 804, 807]), there is no reason why a mortgage creditor should be barred
filed his answer, and in not filing a counterclaim for the recovery thereof, the from accepting, before a foreclosure sale, payments voluntarily tendered by
said defendant-appellee in effect renounced whatever right he might have the debtor-mortgagor who admits a subsisting indebtedness.
had to recover the said amount.
PREMISES CONSIDERED, the judgment appealed from is modified by setting
The appeal is meritorious. 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
In issuing a writ of replevin, and, after trial, in upholding plaintiff-appellant's the said defendant-appellee.
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

RUPERTO G. CRUZ, ET AL., plaintiffs-appellees, vs. FILIPINAS
INVESTMENT & FINANCE CORPORATION, defendant-appellant.
S a l e s P a r t X P a g e | 23
Civil law; Contract of sale of personal property payable in installments;
Remedies of vendor in case the vendee defaults in the payment of two or
more installments; Effect of foreclosure and actual sale of mortgaged chattel.
—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 (Radiowealth, Inc. v. Lavin, et al., L-18563, April 27, 1963), that
the exercise of one would bar the exercise of the others (Pacific Commercial
Co. v. De la Rama, 72 Phil. 380). It may also be stated that the established
rule is to the effect that the foreclosure and actual sale of a mortgaged
chattel bar further recovery by the vendor of any balance on the purchaser’s
outstanding obligation not so satisfied by the sale.
Civil procedure; Definition of the term “action”.—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 law-ful
demand of one’s right in a court of justice; the legal and formal demand of
one’s right 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 v. De
la Riva, 46 Phil. 827).
Civil law; Sale; Meaning of the term “action” as used in Article 1484 of the
Civil Code.—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. Cruz vs. Filipinas Investment & Finance Corporation, 23 SCRA
791, No. L-24772 May 27, 1968
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
S a l e s P a r t X P a g e | 24
Philippines to secure a loan of P2,600.00 obtained by Mrs. Reyes
from that bank;
6. That also on July 15, 1963, the Far East Motor Corporation for
value received indorsed the promissory note and assigned all its
rights and interest in the Deeds of Chattel Mortgage and in the Deed
of Real Estate Mortgage (Annexes "A", "B" and "B-l") to the
defendant, Filipinas Investment & Finance Corporation, with due
notice of such assignment to the plaintiffs...;
7. That plaintiff Cruz defaulted in the payment of the promisory note
(Annex "A") ; that the only sum ever paid to the defendant was Five
Hundred Pesos (P500.00) on October 2, 1963, which was applied as
partial payment of interests on his principal obligation; that,
notwithstanding defendant's demands, Cruz made no payment on
any of the installments stipulated in the promissory note;
8. That by reason of Cruz's default, defendant took steps to
foreclose the chattel mortgage on the bus; that said vehicle had
been damaged in an accident while in the possession of plaintiff
Cruz;
9. That at the foreclosure sale held on January 31, 1964 by the
Sheriff of Manila, the defendant was the highest bidder, defendant's
bid being for Fifteen Thousand Pesos (P15,000.00)...;
10. That the proceeds of the sale of the bus were not sufficient to
cover the expenses of sale, the principal obligation, interests, and
attorney's fees, i.e., they were not sufficient to discharge fully the
indebtedness of plaintiff Cruz to the defendant;
11. That on February 12, 1964, preparatory to foreclosing its real
estate mortgage on Mrs. Reyes' land, defendant paid the mortgage
indebtedness of Mrs. Reyes to the Development Bank of the
Philippines, in the sum of P2,148.07, the unpaid balance of said
obligation...;
12. That pursuant to a provision in the real estate mortgage
contract, authorizing the mortgagee to foreclose the mortgage
judicially or extra-judicially, defendant on February 29, 1964
requested the Provincial Sheriff of Bulacan to take possession of, and

sell, the land subject of the Real Estate Mortgage, Annex "B-1", to
satisfy the sum of P43,318.92, the total outstanding obligation of the
plaintiffs to the defendant, as itemized in the Statement of Account,
which is made a part hereof as Annex "F"...;
13. That notices of sale were duly posted and served to the
Mortgagor, Mrs. Reyes, pursuant to and in compliance with the
requirements of Act 3135...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a
letter to the defendant asking for the cancellation of the real estate
mortgage on her land, but defendant did not comply with such
demand as it was of the belief that plaintiff's request was without
any legal basis;
15. That at the request of the plaintiffs, the provincial Sheriff of
Bulacan held in abeyance the sale of the mortgaged real estate
pending the result of this action.
Passing upon the issues which, by agreement of the parties, were limited to
— (1) "Whether defendant, which has already extrajudicially foreclosed the
chattel mortgage executed by the buyer, plaintiff Cruz, on the bus sold to
him on installments, may also extrajudicially foreclose the real estate
mortgage constituted by plaintiff Mrs. Reyes on her own land, as additional
security, for the payment of the balance of Cruz' Obligation, still remaining
unpaid"; and (2) whether or not the contending parties are entitled to
attorney's fees — the court below, in its decision of April 21, 1965, sustained
the plaintiffs' stand and declared that the extrajudicial foreclosure of the
chattel mortgage on the bus barred further action against the additional
security put up by plaintiff Reyes. Consequently, the real estate mortgage
constituted on the land of said plaintiff was ordered cancelled and defendant
was directed to pay the plaintiffs attorney's fees in the sum of P200.00.
Defendant filed the present appeal raising the same questions presented in
the lower court.
There is no controversy that, involving as it does a sale of personal property
on installments, the pertinent legal provision in this case is Article 1484 of
the Civil Code of the Philippines, 2 which reads:
S a l e s P a r t X P a g e | 25
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
 S a l e s P a r t X P a g e | 26

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.
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).

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.
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.

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
 S a l e s P a r t X P a g e | 27

DANIEL L. BORBON II AND FRANCISCO L. BORBON, petitioners, vs.

SERVICEWIDE SPECIALISTS, INC. & HON. COURT OF APPEALS,
respondents.

Civil Law; Sales; Mortgages; Remedies under Article 1484 of the Civil Code
are not cumulative but alternative and exclusive.—The remedies under
Article 1484 of the Civil Code are not cumulative but alternative and
exclusive, which means, as so held in Nonato vs. Intermediate Appellate
Court and Investor’s Finance Corporation, that—“x x x 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.”

Same; Same; Same; When the assignee forecloses on the mortgage, there
can be no further recovery of the deficiency, and the seller-mortgagee is
deemed to have renounced any right thereto.—When the seller assigns his
credit to another person, the latter is likewise bound by the same law.
Accordingly, when the assignee forecloses on the mortgage, there can be no
further recovery of the deficiency, and the seller-mortgagee is deemed to
have renounced any right thereto. A contrario, in the event the seller-
mortgagee first seeks, instead, the enforcement of the additional mortgages,
guarantees or other security arrangements, he must then be held to have
lost by waiver or non-choice his lien on the chattel mortgage of the personal
property sold by and mortgaged back to him, although, similar to an action
for specific performance, he may still levy on it.

Same; Same; Same; Difference between alternative obligations and

alternative remedies.—In ordinary alternative obligations, a mere choice
categorically and unequivocally made and then communicated by the person
entitled to exercise the option concludes the parties. The creditor may not
thereafter exercise any other option, unless the chosen alternative proves to
be ineffectual or unavailing due to no fault on his part. This rule, in essence,
is the difference between alternative obligations, on the one hand, and
alternative remedies, upon the other hand, where, in the latter case, the
choice generally becomes conclusive only upon the exercise of the remedy.

For instance, in one of the remedies expressed in Article 1484 of the Civil
Code, it is only when there has been a foreclosure of the chattel mortgage
that the vendee-mortgagor would be permitted to escape from a deficiency
liability. Thus, if the case is one for specific performance, even when this
action is selected after the vendee has refused to surrender the mortgaged
property to permit an extrajudicial foreclosure, that property may still be
levied on execution and an alias writ may be issued if the proceeds thereof
are insufficient to satisfy the judgment credit. So, also, a mere demand to
surrender the object which is not heeded by the mortgagor will not amount
to a foreclosure, but the repossession thereof by the vendor-mortgagee
would have the effect of foreclosure.
VITUG, J.:
From the decision of the Court of Appeals in CA-G.R. CV No. 30693 which
affirmed that of the Regional Trial Court, NCJR, Branch 39, Manila, in Civil
Case No. 85-29954, confirming the disputed possession of a motor vehicle in
favor of private respondent and ordering the payment to it by petitioners of
liquidated damages and attorney's fees, the instant appeal was interposed.
The appellate court adopted the factual findings of the court a quo, to wit:
"The plaintiff's evidence shows among others that on December 7, 1984,
defendants Daniel L. Borbon and Francisco Borbon signed a promissory note
(Exh. A) which states among others as follows:
"'PROMISSORY NOTE
        Acct. No. 115008276
        Makati, Metro Manila,
        Philippines
        December 7, 1984
'P122,856.00
'For value received (installment price of the chattel/s purchased), I/We
jointly and severally promised to pay Pangasinan Auto Mart, Inc. or order, at
its office at NMI Bldg. Buendia Avenue, Makati, MM the sum of One Hundred
Twenty Two Thousand Eight Hundred Fifty Six only (P122,856.00), Philippine
Currency, to be payable without need of notice or demand, in installments of
the amounts following and at the dates hereinafter set forth, to wit:
P10,238.00 monthly for Twelve (12) months due and payable on the 7 day
S a l e s P a r t X P a g e | 28
of each month starting January, 1985, provided that a late payment charge
of 3% per month shall be added on each unpaid installment from due date
thereof until fully paid.
It is further agreed that if upon such default, attorney's services are availed
of, an additional sum equal to twenty five percent (25%) of the total sum
due thereon, which shall not be less than five hundred pesos, shall be paid
to the holder hereof for attorney's fees plus an additional sum equivalent to
twenty five percent (25%) of the total sum due which likewise shall not be
less than five hundred pesos for liquidated damages, aside from expenses of
collection and the legal costs provided for in the Rules of Court.
'It is expressly agreed that all legal actions arising out of this note or in
connection with the chattel(s) subject hereof shall only be brought in or
submitted to the jurisdiction of the proper court either in the City of Manila
or in the province, municipality or city where the branch of the holder hereof
is located.
'Acceptance by the holder hereof of payment of any installment or any part
thereof after due dated (sic) shall not be considered as extending the time
for the payment or any of the installments aforesaid or as a modification of
any of the conditions hereof. Nor shall the failure of the holder hereof to
exercise any of its right under this note constitute or be deemed as a waiver
of such rights.
'Maker:
(S/t)  DANIEL L. BORBON, II
Address: 14 Colt St., Rancho Estate I, Concepcion Dos, Marikina, MM
(S/t)  FRANCISCO BORBON
Address: 73 Sterling Life Home Pamplona, Las Piñas, MM
"WITNESSES
(illegible)                               (illegible)
'PAY TO THE ORDER OF
FILINVEST CREDIT CORPORATION

without recourse, notice, presentment and demand waived
PANGASINAN AUTO MART, INC.
BY:
(S/T) K.N. DULCE
           Dealer'
"To secure the Promissory Note, the defendants executed a Chattel
Mortgage (Exh. B) on
    'One (1) Brand new 1984 Isuzu
    KCD 20 Crew Cab (Conv.)
    Serial No. KC20D0F 207685
    Key No. 5509
(Exhs. A and B, p. 2 tsn, September 10, 1985)
"The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest
Credit Corporation on December 10, 1984, with notice to the defendants
(Exh. C, p. 10, Record).
"On March 21, 1985, Filinvest Credit Corporation assigned all its rights,
interest and title over the Promissory Note and the chattel mortgage to the
plaintiff (Exh. D; p. 3, tsn, Sept. 30, 1985).
"The promissory note stipulates that the installment of P10,238.00 monthly
should be paid on the 7th day of each month starting January 1985, but the
defendants failed to comply with their obligation (p. 3, tsn, Sept. 30, 1985).
"Because the defendants did not pay their monthly installments, Filinvest
demanded from the defendants the payment of their installments due on
January 29, 1985 by telegram (Exh. E; pp. 3-4, tsn, Sept. 30, 1985).
"After the accounts were assigned to the plaintiff, the plaintiff attempted to
collect by sending a demand letter to the defendants for them to pay their
entire obligation which, as of March 12, 1985, totaled P185,257.80 (Exh. H;
pp. 3-4, tsn, Sept. 30, 1985).
"For their defense, the defendants claim that what they intended to buy from
S a l e s P a r t X P a g e | 29
Pangasinan Auto Mart was a jeepney type Isuzu K. C. Cab. The vehicle that
they bought was not delivered (pp. 11-12, tsn, Oct. 17, 1985). Instead,
through misrepresentation and machination, the Pangasinan Motor, Inc.
delivered an Isuzu crew cab, as this is the unit available at their warehouse.
Later the representative of Pangasinan Auto Mart, Inc. (assignor) told the
defendants that their available stock is an Isuzu Cab but minus the rear
body, which the defendants agreed to deliver with the understanding that
the Pangasinan Auto Mart, Inc. will refund the defendants the amount of
P10,000.00 to have the rear body completed (pp. 12-34, Exhs. 2 to 3-3A).
"Despite Communications with the Pangasinan Auto Mart, Inc., the latter was
not able to replace the vehicle until the vehicle delivered was seized by order
of this court. The defendants argue that an assignee stands in the place of
an assignor which, to the mind of the court, is correct. The assignee exercise
all the rights of the assignor (Gonzales vs. Rama Plantation Co., C.V. 08630,
Dec. 2, 1986).
"The defendants further claim that they are not in default of their obligation
because the Pangasinan Auto Mart was first guilty of not fulfilling its
obligation in the contract. The defendants claim that neither party incurs
delay if the other does not comply with his obligation. (citing Art. 1169,
N.C.C.)"[1]
In sustaining the decision of the court a quo, the appellate court ruled that
petitioners could not avoid liability under the promissory note and the chattel
mortgage that secured it since private respondent took the note for value
and in good faith.
In their appeal to this Court, petitioners merely seek a modification of the
decision of the appellate court insofar as it has upheld the court a quo in the
award of liquidated damages and attorney's fees in favor of private
respondent. Petitioners invoke the provisions of Article 1484 of the Civil Code
which reads:
"ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
"(1)  Exact fulfillment of the obligation, should the vendee fail to pay;
"(2)  Cancel the sale, should the vendee's failure to pay cover two or more
installments;
"(3)  Foreclose the chattel mortgage or the thing sold, if one has been

constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void."
The remedies under Article 1484 of the Civil Code are not cumulative but
alternative and exclusive,[2] which means, as so held in Nonato vs.
Intermediate Appellate Court and Investor's Finance Corporation, [3] that -
"x x x Should the vendee or purchaser of a personal property default in the
payment of two or more of the agreed installments, the vendor or seller has
the option to avail of any of these three remedies - either to exact fulfillment
by the purchaser of the obligation, or to cancel the sale, or to foreclose the
mortgage on the purchased personal property, if one was constituted. These
remedies have been recognized as alternative, not cumulative, that the
exercise of one would bar the exercise of the others."[4]
When the seller assigns his credit to another person, the latter is likewise
bound by the same law. Accordingly, when the assignee forecloses on the
mortgage, there can be no further recovery of the deficiency,[5] and the
seller-mortgagee is deemed to have renounced any right thereto.
[6]
 A contrario, in the event the seller-mortgagee first seeks, instead, the
enforcement of the additional mortgages, guarantees or other security
arrangements, he must then be held to have lost by waiver or non-choice his
lien on the chattel mortgage of the personal property sold by any mortgaged
back to him, although, similar to an action for specific performance, he may
still levy on it.
In ordinary alternative obligations, a mere choice categorically and
unequivocally made and then communicated by the person entitled to
exercise the option concludes the parties. The creditor may not thereafter
exercise any other option, unless the chosen alternative proves to be
ineffectual or unavailing due to no fault on his part. This rule, in essence, is
the difference between alternative obligations, on the one hand, and
alternative remedies, upon the other hand, where, in the latter case, the
choice generally becomes conclusive only upon the exercise of the remedy.
For instance, in one of the remedies expressed in Article 1484 of the Civil
Code, it is only when there has been a foreclosure of the chattel mortgage
that the vendee-mortgagor would be permitted to escape from a deficiency
liability. Thus, if the case is one for specific performance, even when this
action is selected after the vendee has refused to surrender the mortgaged
property to permit an extrajudicial foreclosure, that property may still be
levied on execution and an alias writ may be issued if the proceeds thereof
are insufficient to satisfy the judgment credit.[7] So, also, a mere demand to
S a l e s P a r t X P a g e | 30
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 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
obligation which x x x include interest on the principal, attorney's fees,
expenses of collection, and costs." In sum, we have observed that the
legislative intent is not to merely limit the proscription of any further action
to the "unpaid balance of the principal" but, as so later ruled in Luneta Motor
Co. vs. Salvador,[10] to all other claims that may likewise be called for in the
accompanying promissory note against the buyer-mortgagor or his
guarantor, including costs and attorney's fees.
In Filipinas Investment & Finance Corporation vs. Ridad [11] while we
reiterated and expressed our agreement on the basic philosophy behind
Article 1484, we stressed, nevertheless, that the protection given to the
buyer-mortgagor should not be considered to be without circumscription or
as being preclusive of all other laws or legal principles. Hence, borrowing
from the examples made in Filipinas Investment, where the mortgagor
unjustifiably refused to surrender the chattel subject of the mortgage upon
failure of two or more installments, or if he concealed the chattel to place it
beyond the reach of the mortgagee, that thereby constrained the latter to
seek court relief, the expenses incurred for the prosecution of the case, such
as attorney's fees, could rightly be awarded.
Private respondent bewails the instant petition in that petitioners have failed
to specifically raise the issue on liquidated damages and attorney's fees
stipulated in the actionable documents. In several cases, we have ruled that
as long as the questioned items bear relevance and close relation to those

specifically raised, the interest of justice would dictate that they, too, must
be considered and resolved and that the rule that only theories raised in the
initial proceedings may be taken up by a party thereto on appeal should only
refer to independent, not concomitant matters, to support or oppose the
cause of action.[12]
Given the circumstances, we must strike down the award for liquidated
damages made by the court a quo but we uphold the grant of attorney's fees
which we, like the appellate court, find to be reasonable. Parenthetically,
while the promissory note may appear to have been a negotiable instrument,
private respondent, however, clearly cannot claim unawareness of its
accompanying documents so as to thereby gain a right greater than that of
the assignor.
WHEREFORE, the appealed decision is MODIFIED by deleting therefrom
the award for liquidated damages; in all other respects the judgment of the
appellate court is AFFIRMED. No cost.
SO ORDERED.
S a l e s P a r t X P a g e | 31
MACONDRAY & Co., INC., plaintiff and appellant, vs. URBANO
EUSTAQUIO, defendant and appellee.
1.CIVIL PROCEDURE; JUDGMENT BY DEFAULT, EFFECT OF.—Under section
128 of our Code of Civil Procedure, the judgment by default against a
defendant who has neither appeared nor filed his answer does not imply a
waiver of rights except that of being heard and of presenting evidence in his
favor. It does not imply admission by the defendant of the facts and causes
of action of the plaintiff, because the codal section requires the latter to
adduce his evidence in support of his allegations as an indispensable
condition before final judgment could be given in his favor, Nor could it be
interpreted as an admission by the defendant that the plaintiff's causes of
action find support in the law or that the latter is entitled to the relief prayed
for. (Chaffin vs. McFadden, 41 Ark., 42; Johnson vs. Pierce, 12 Ark., 599;
Mayden vs. Johnson, 59 Ga., 105; Peo. vs. Rust; 292 111., 412; Madison
County vs. Smith, 95 111., 328; Keen vs. Leipold, 211 111. A., 163; Chicago
etc. Electric R. Co. vs. Krempel, 116 111. A., 253.)
2.ACT No. 4122, VALIDITY AND CONSTITUTIONALITY OF; POWER OF THE
LEGISLATURE TO ENACT SAME.—The ruling in Manila Trading & Supply Co.
vs. Reyes (62 Phil., 461), is reaffirmed. The law seeks to remedy an evil
which the Legislature wished to suppress; this legislative body has power to
promulgate the law; the law does not completely deprive vendors on the
installment basis of a remedy, but requires them to elect among three
alternative remedies; the law, on the other hand, does not completely
exonerate the purchasers, but only limits their liabilities and, finally, there is
no vested right when a procedural law is involved, wherefore, the Legislature
could enact Act No. 4122 without violating the aforesaid organic law.
3.ID.; ID.; INTERPRETATION.—The plaintiff contends that, even granting
that Act No. 4122 is valid, the court should have ordered the defendant to
pay at least the stipulated interest, attorney's fees, and the costs. This
question involves the interpretation of the pertinent portion of the law,
reading: "However, if the vendor has chosen to foreclose the mortgage he
shall have no further action against the purchaser for the recovery of any
unpaid balance owing by the same, and any agreement to the contrary shall
be null and void." This paragraph, as its language shows, refers to the
mortgage contract executed by the parties, whereby the purchaser
mortgages the chattel sold to him on the installment basis in order to

guarantee the payment of its price, and the words "any unpaid balance"
should be interpreted as having reference to the deficiency judgment to
which the mortgagee may be entitled where, after the mortgaged chattel is
sold at public auction, the proceeds obtained therefrom are insufficient to
cover the full amount of the secured obligations which, in the case at bar as
shown by the note and by the mortgage deed, include interest on the
principal, attorney's fees, expenses of collection, and the costs, The
fundamental rule which should govern the interpretation of laws is to
ascertain the intention and meaning of the Legislature and to give effect
thereto. (Sec. 288, Code of Civil Procedure; U. S. vs. Toribio, 15 Phil., 85; U.
S. vs. Navarro, 19 Phil., 134; De Jesus vs. City of Manila, 29 Phil., 73;
Borromeo vs. Mariano, 41 Phil., 322; People vs. Concepcion, 44 Phil., 126.)
Were it the intention of the Legislature to limit its meaning to the unpaid
balance of the principal, it would have so stated. Macondray & Co. vs.
Eustaquio, 64 Phil. 446, No. 43683 July 16, 1937
DECISION
IMPERIAL, J.:
This is an appeal taken by the plaintiff corporation from the judgment of the
Court of First Instance of Manila dismissing its complaint, without costs.
The plaintiff brought the action against the defendant to obtain the
possession of an automobile mortgaged by the latter, and to recover, the
balance owing upon a note executed by him, the interest thereon, attorney's
fees, expenses of collection, and the costs. The defendant was duly
summoned, but he failed to appear or file his answer, wherefore, he was
declared in default and the appealed judgment was rendered accordingly.
The plaintiff sold the defendant a De Soto car, Sedan, for the price of which,
P595, he executed in its favor the note of May 22, 1934. Under this note, the
defendant undertook to pay the car in twelve monthly installments, with 12
per cent interest per annum, 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
S a l e s P a r t X P a g e | 32
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 by not asking for any positive relief.
Under section 128 of our Code of Civil Procedure, the judgment by default
against a defendant who has neither appeared nor filed his answer does not
imply a waiver of rights except that of being heard and of presenting
evidence in his favor. It does not imply admission by the defendant of the
facts and causes of action of the plaintiff, because the codal section requires
the latter to adduce his evidence in support of his allegations as an
indispensable condition before final judgment could be given in his favor. Nor
could it be interpreted as an admission by the defendant that the plaintiff's
causes of action find support in the law or that the latter is entitled to the
relief prayed for. (Chaffin vs. McFadden, 41 Ark., 42; Johnson vs. Pierce, 12
Ark., 599; Mayden vs. Johnson, 59 Ga., 105; Peo. vs.Rust, 292 111., 4i2;
Madison County vs. Smith, 95 111., 328; Keen vs. Leipold, 211 111. A., 163;
Chicago etc. Electric R. Co. vs. Krempel, 116 111. A., 253.) For these
reasons, we hold that the defendant did not waive the application 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 & Supply Co. vs. Reyes (62 Phil., 461), the validity of the said
law was already passed upon when it was questioned for the same reasons
here advanced. In resolving the questions in favor of the validity 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 constitutional inquiry.
"Judge Moran in first instance had the following to say relative to the reasons
for the enactment of Act No. 4122:
" 'Act No. 4122 aims to correct asocial 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. The object of the law is highly commendable. As to
whether or not the means employed to do away with the evil
abovementioned 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 :
S a l e s P a r t X P a g e | 33
" '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 installments already paid, "if there be an agreement to that
effect." Furthermore, if the vendor avails himself of the right to foreclose the
mortgage this amendment prohibits him from bringing an action against the
purchaser for the unpaid balance.'
" '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 reasons 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 chattels, was an undue restraint upon the liberty of a
citizen to contract with respect to his property rights. 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
judgments 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 to 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 can take judicial notice of the stringency of finances
that presses upon the people, we have no reason to believe that this was the
reason which motivated the enactment of Act No. 4122.
(Wright vs.Wimberley [1919], 184 Pac., 740.)
"While we are on the subject of the authorities, 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 states 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 States. It had under consideration a law passed in the
State of Illinois, which provided that the equitable estate of the mortgagor
should not be extinguished for 1 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 the power to describe the legal and equitable obligations of a
contract to be made and executed within its jurisdiction. It may exempt any
property it thinks proper from sale for the payment of a debt; and may
impose such conditions and restrictions upon the creditor as its judgment
and policy may dictate. And all future contracts would be subject to such
provisions; and they would be obligatory upon the parties in the courts of
the United States, as well as in those of the State.'
"As we understand it, parties have no vested right in particular remedies or
modes of procedure, and the legislature may change existing remedies or
modes of procedure without impairing the obligation of contracts, provided
an efficacious remedy remains for enforcement. But changes in the remedies
available for the enforcement of a mortgage may not, even when public
policy is invoked as an excuse, be pressed so far as to cut down the security
of a mortgage without moderation or reason or in a spirit of
oppression(Brotherhood of American Yeoman vs. Manz [1922], 206 Pac, 403;
S a l e s P a r t X P a g e | 34
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 required
decisions of this court to authorize such a procedure. (Bank of the Philippine
Islands vs. Olutanga Lumber Co. [1924], 47 Phil., 20; Manila Trading &
Supply Co. vs. Tamaraw Plantation Co., supra.) But the practice became
universal enough to acquire the force of direct legislative enactment
regarding procedure. To a certain extent the Legislature has now
disauthorized this practice, but has left a sufficient remedy remaining.
"Three remedies are available to the vendor who has sold personal property
on the installment plan. (1) He may elect to exact the fullfilment of the
obligation. (Bachrach Motor Co. vs. Millan, supra.) (2) If the vendee shall
have failed to pay two or more installments, the vendor may, cancel the sale.
(3) If the vendee shall have failed to pay two or more installments, the
vendor may foreclose the mortgage, if one has been given on the property.
The basis of the first option is the Civil Code. The basis of the last two
options is Act No. 4122, amendatory of the Civil Code. And the proviso to the
right to foreclose is, that if the vendor has chosen this remedy, he shall have
no further action against the purchaser for the recovery of any unpaid
balance owing by the same. In other words, as we see it, the Act does no
more than qualify the remedy.
"Most constitutional issues are determined by the court's approach to them.
The proper approach in cases of this character should be to resolve all
presumptions in favor of the validity of an act in the absence of a clear
conflict between it and the constitution. All doubts should be resolved in its
favor.
"The controlling purpose of Act No. 4122 is revealed to be to close the door
to abuses committed in connection with the foreclosure of chattel mortgages
when sales were payable, in installments. That public policy, obvious from
the statute, was defined and established by legislative authority. It is for the
courts to perpetuate it.
"We are of the opinion that the Legislature may change judicial methods and
remedies for the enforcement of contracts, as it has done by the enactment
of Act No. 4122, without unduly interfering with the obligation of the
contract, without sanctioning class legislation, and without a denial of the

equal protection of the laws. We rule that* Act No. 4122 is valid and
enforceable. As a consequence, the errors assigned by the appellant are
overruled, and the judgment affirmed, the costs of this instance to be taxed
against the losing party."
In his brief counsel for the plaintiff advances no new arguments which have
not already been considered in the Reyes case, and we see no reason for
reaching a different conclusion now. The law seeks to remedy an evil which
the Legislature wished to suppress; this legislative body has power to
promulgate the law; the law does not completely deprive vendors on the
installment basis of a remedy, but requires them to elect among three
alternative remedies; the law, on the other hand, does not completely
exonerate the purchasers, but only limits their liabilities and, finally, there is
no vested right when a procedural law is involved, wherefore the Legislature
could enact Act No. 4122 without violating the aforesaid organic law.
III. In its last assignment of error plaintiff contends that, even granting that
Act No. 4122 is valid, the court should have ordered the defendant to pay at
least the stipulated interest, attorney's fees, and the costs. This question
involves the interpretation of the pertinent portion of the law, reading:
"However, if the vendor has chosen to foreclose the mortgage he shall have
no further action, against the purchaser for the recovery of any unpaid
balance owing by the same, and any agreement to the contrary shall be null
and void." This paragraph, as its language shows, refers to the mortgage
contract executed by the parties, whereby the purchaser mortgages the
chattel sold to him on the installment basis in order to guarantee the
payment of its price, and the words "any unpaid balance" should be
interpreted as having reference to the deficiency judgment to which the
mortgagee may be entitled where, after the mortgaged chattel is sold at
public auction, the proceeds obtained therefrom are insufficient to cover the
full amount of the secured obligations which, in the case at bar as shown by
the note and by the mortgage deed, include interest on the principal,
attorney's fees, expenses of collection, and the costs. The fundamental rule
which should govern the interpretation of laws is to ascertain the intention
and meaning of the Legislature and to give effect thereto. (Sec. 288, Code of
Civil Procedure; U. S. vs. Toribio, 15 Phil., 85; U. S. vs. Navarro, 19 Phil.,
134; De Jesus vs. City of Manila, 29 Phil., 73; Borromeo vs. Mariano, 41 Phil.,
322; People vs. Concepcion, 44 Phil., 126.) Were it the intention of the
Legislature to limit its meaning to the unpaid balance of the principal, it
would have so stated. We hold, therefore, that the assignment of error is
untenable.
S a l e s P a r t X P a g e | 35
In view of the foregoing, the appealed judgment is affirmed, with the costs
of this instance to the plaintiff and appellant. So ordered.
FlLIPINAS INVESTMENT & FlNANCE CORPORATION,
plaintiffappellee, vs. LOURDES V. RIDAD and LUIS RIDAD,
defendants-appellants.
Remedial law; Civil actions; Judgments; Judgment which does not contain
statement of facts to support it but refers to the pre-trial order it issued
which contains substantial findings of facts is valid.—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." While .the decision in
question does not contain facts to support it, there being an express
reference to the pre-trial order it issued which contains substantial findings
of facts, the latter must be considered and taken as f orming part of the
decision.
Civil law; Sales; Sale of personalty in installments; When Art, 1484 of Civil
Code governs an action for replevin.—It is true that the present action is one
for replevin, but because It culminated in foreclosure of the chattel mortgage
and the sale of the car at public auction, the provisions of art. 1484 of the
Civil Code (Recto Law) must govern the resolution of the issue presented.
Same: Same; Same; Art, 1484 of Civil Code construed; When mortgagee is
entitled to necessary expenses incurred in the prosecution of action to regain
possession of the chattel.—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, the mortgagee is entitled to recover necessary expenses incurred
by him in the prosecution of the action for replevin so that he can regain
possession of the chattel. Recoverable expenses would include expenses
properly incurred in effecting seizure of the chattel and reasonable attorney's
fees in prosecuting the action for replevin. White the basic philosophy of the
Recto Law is that the underprivileged mortgagors must be afforded full
protection against the capacity of the mortgagees, said law should not be
construed as to deprive the mortgagee protection against perverse

mortgagors. Filipinas Investment & Finance Corp. vs. Ridad, 30 SCRA 564,
No. L-27645 November 28, 1969
DECISION
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 P 13,371.40.  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 the order of default and the decision having been
denied, they appealed to the Court of First Instance of Manila.
S a l e s P a r t X P a g e | 36
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 precept[2] because it does not state the facts of the case and the
law on which it is based and hence, is a nullity, finds no justification here.

2. The appellants theorize that the action of the appellee is for the payment
of the unpaid balance of the purchase price with a prayer
for replevin.  When, therefore, the appellee seized the
car, extrajudicially foreclosed the mortgage, had the vehicle sold, and bought
the same at public auction as the highest bidder, it thereby renounced any
and all rights which it might have under the promissory note as well as the
payment of the unpaid balance, and, consequently, what it would otherwise
be entitled under and by virtue of the present action, including attorney's
fees and costs of suit, pursuant to article 1484 of the new Civil Code.
On the other hand, the appellee maintains that it is entitled to an award of
attorney's fees and actual expenses and costs of suit by virtue of the
unjustifiable failure and refusal of the appellants to comply with their
obligations (one of which is the surrender of the chattel to the mortgagee
upon the latter's demand), contending that what is prohibited in art.
1484, par. 3 of the new Civil Code relied upon by the appellants is the
recovery of the unpaid balance of the purchase price by means of an action
other than a suit for replevin; that Luneta Motor Co. vs. Salvador, et al. (L-
13373, July 26, 1960) is inapplicable to the present case because the remedy
sought in that case was in the conjunctive and not in the alternative, such
that, necessarily, when the appellee therein foreclosed the mortgage on the
motor vehicle during the progress of the action, the other action for a sum of
money had to be dismissed since the same could not prosper as it would
constitute a separate action for the recovery of the unpaid balance
contemplated in article 1484; and that in the present case, however, the
court awarded attorney's fees, costs of suit, and expenses incurred in
relation to the seizure of the motor vehicle by virtue of the writ of replevin in
the same action because the appellee was compelled to institute the same
on account of the appellants' unjustifiable failure and refusal to comply with
the former's demands.
The appellee further argues that the award of attorney's fees and the costs
of suit together with expenses incurred, was stipulated both in the
promissory note and chattel mortgage contract; that even in the absence of
such stipulation, the award of attorney's fees is discretionary on the part of
the court pursuant to par. 2, art. 2208, new Civil Code; and that the said
award could likewise be made by the lower court on the basis of the general
prayer in the complaint for the award of whatever relief that the lower court
may deem just and equitable in the premises.
It is true that the present action is one for replevin, but because it
culminated in the foreclosure of the chattel mortgage and the sale of the car
S a l e s P a r t X P a g e | 37
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. Milian, 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 the defendant a De Soto car, Sedan, for the price of
which, P595, he executed in its favor the note of May 22, 1934.  Under this
note, the defendant undertook to pay the car in twelve monthly installments,
with 12 per cent interest per annum, 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 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 No-
vember 20, 1934, P110.25 as attorney's fees, and the costs.
*        *        *
"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: 'How-
ever, 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
S a l e s P a r t X P a g e | 38
price, and the words 'any unpaid balance' should be interpreted as having
reference to the deficiency judgment to which the mortgagee may be
entitled where, after the mortgaged chattel is sold at public auction, the
proceeds obtained therefrom are insufficient to cover the full amount of the
secured obligations which, in the case at bar as shown by the note and by
the mortgage deed, include interest on the principal, attorney's
fees, expenses of collection, and the costs.  The fundamental rule
which should govern the interpretation of laws is to ascertain the intention
and meaning of the Legislature and to give effect thereto.  (Sec. 288, Code
of Civil Procedure; U. S. vs. Toribio, 15 Phil. 85; U. S. vs. Navarro, 19 Phil.
134; De Jesus vs. City of Manila, 29 Phil. 73; Borromeo vs. Mariano, 41
Phil. 322; People vs. Concepcion, 44 Phil. 126.) Were it the intention of the
Legislature to limit its meaning to the unpaid balance of the principal, it
would have so stated.  We hold, therefore, that the assignment of error is
untenable." (emphasis supplied)
In other words, under this amendment as above interpreted, in all
proceedings for the foreclosure of a chattel mortgage, executed on chattels
which have been sold on the installment plan, the mortgagee is limited to
the property mortgaged[5] and is not entitled to attorney's fees and costs of
suit.
In a subsequent case[6] 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 promissor and the guarantor.  And he has no more right either to the
costs and the attorney's fees that would go with the suit."

This might be considered a reiteration of the ruling in Macondray.
A scrutiny of the doctrine enunciated in the above-cited cases will reveal that
its ultimate and salutary purpose is to prevent the vendor from
circumventing the Recto Law.  Congress sought to protect the buyers on
installment who more often than not have been victimized by sellers who,
before the enactment of this law, succeeded in unjustly enriching themselves
at the expense of the buyers, because aside from recovering the goods sold,
upon default of the buyer in the payment of two installments, still retained
for themselves all amounts already paid, and, in addition, were adjudged
entitled to damages, such as attorney's fees, expenses a litigation and
costs.  Congress could not have intended to impair, much less do away with,
the right of the seller to make commercial use of his credit against the buyer
the buyer is not burdened beyond what this law allows.[7]
It would appear from the emphasis and precision of the language employed
in the decisions already adverted to that in no instance whatsoever may the
mortgagee recover from the mortgagor any amount or sum after the
foreclosure of the mortgage, for, as we understand it, the philosophy of the
Recto Law is that the underprivileged mortgagors must be afforded full
protection against the rapacity of the mortgagees.
But while we unconditionally concur in, and give our approval to, the basic
philosophy of the Recto Law, we view with no small amount of
circumspection the implication, necessarily drawn from the above discussion,
that the mortgagee is not entitled to protection against perverse
mortgagors.  Where the mortgagor plainly refuses to deliver the chattel
subject of the mortgage upon his failure to pay two or more installments, or
if he conceals the chattel to place it beyond the reach of the mortgagee,
what then is the mortgagee expected to do?  It is part of conventional
wisdom and the rule of law that no man can take the law into his own
hands; so it is not to be supposed that the Legislature intended that the
mortgagee should wrest or seize the chattel forcibly from the control and
possession of the mortgagor, even to the extent of using violence which is
unwarranted in law.  Since the mortgagee would enforce his rights through
the means and within the limits delineated by law, the next step in such
situations being the filing of an action for replevin to the end that he may
recover immediate possession of the chattel and, thereafter, enforce his
rights in accordance with the contractual relationship between him and the
mortgagor as embodied in their agreement, then it logically follows as a
matter of common sense, that the necessary expenses incurred in the
prosecution by the mortgagee of the action for replevin so that he can regain
S a l e s P a r t X P a g e | 39
possession of the chattel, should be borne by the mortgagor.  Recoverable
expenses would, in our view, include expenses properly incurred in effecting
seizure of the chattel and reasonable attorney's fees in prosecuting the
action for replevin.  And we declare that in this case before us, the amounts
awarded by the court a quo to the mortgagee (appellee) are reasonable.
To the extent that our pronouncement here conflicts with the ruling
announced and followed in the cases hereinbefore discussed, the latter must
be considered pro tanto qualified.
ACCORDINGLY, the judgment a quo is affirmed.  No costs.
PCI LEASING AND FINANCE, INC., petitioner, vs. GIRAFFE-X
CREATIVE IMAGING, INC., respondent.
Financial Leasing; Financing Company Act (R.A. No. 5980), as last amended
by R.A. No. 8556 (Financing Company Act of 1998); 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.—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.
Same; Words and Phrases; “Financial Leasing,” Defined.—The Court can
allow that the underlying lease agreement has the earmarks or made to
appear as a financial leasing, 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.
Same; 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.—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. 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.
Same; Since 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, the
courts, therefore, in determining the respective responsibilities of the parties
to the agreement, 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.—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.
S a l e s P a r t X P a g e | 40
Same; Demand Letters; Statutory Construction; Certainly a lawyer would
know that a world of difference exists between “and” and “or” in the manner
that the word is employed in a demand 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.—Evidently, the letter did not make
a demand for the payment of the P8,248,657.47 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. 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. The word “or” is a disjunctive term signifying
disassociation and independence of one thing from each of the other things
enumerated.
Same; Recto Law (Art. 1485, Civil Code); Where a lease agreement is in
reality a lease with an option to purchase an equipment to which Article 1485
of the Civil Code applies.—The demand could only be that the respondent
need not return the equipment if it paid the P8,248,657.47 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 LEASINGGIRAFFE 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.
Same; Same; The Supreme Court has 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.—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.
Same; Same; Replevin; The lessor in a lease with option to purchase, in
choosing, through replevin, to deprive the lessee of possession of the leased
equipment, waived its right to bring an action to recover unpaid rentals on
the said leased items; 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.—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. As we articulated in Elisco
Tool Manufacturing Corp. v. Court of Appeals, 307 SCRA 731 (1999), 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. By virtue of the writ of seizure
S a l e s P a r t X P a g e | 41
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.
Same; Same; Human Relations; The imperatives of honest dealings given
prominence in the Civil Code under the heading, Human Relations, provide
another reason why we must hold the petitioner to its word as embodied in
its demand letter; The Recto Law was precisely enacted to prevent the kind
of aberration where the financial lessor would end up making an instant
killing out of the transaction at the expense of its client.—The imperatives of
honest dealings given prominence in the Civil Code under the heading:
Human Relations, provide another reason why we must hold the petitioner to
its word as embodied in its demand letter. Else, we would witness a situation
where even if the respondent surrendered the equipment voluntarily, the
petitioner can still sue upon its claim. This would be most unfair for the
respondent. We cannot allow the petitioner to renege on its word. Yet more
than that, the very word “or” as used in the letter conveys distinctly its
intention not to claim both the unpaid balance and the equipment. It is not
difficult to discern why: if we add up the amounts paid by the respondent,
the residual value of the property recovered, and the amount claimed by the
petitioner as sued upon herein (for a total of P21,779,029.47), 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. Not only to the respondent, but
those similarly situated who may fall prey to a similar scheme.
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
P3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10 worth
P6,500,000.00. 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 P116,878.21 monthly, and for Oxberry
Cinescan, P181.362.00 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 =P4,207,615.56
mpact Graphics) x 36 months
-- PLUS--
P181,362.00 @ month (for the Oxberry
Cinescan) x 36 months =P6,529,032.00
Total Amount to be paid by GIRAFFE
(or the NET CONTRACT AMOUNT)
P10,736,647.56
By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the
amount of P3,120,000.00 by way of "guaranty deposit," a sort of
performance and compliance bond for the two equipment. Furthermore, the
S a l e s P a r t X P a g e | 42
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 letter[4] 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 227[6] 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 P8,248,657.47 inclusive of interest and charges
thereon;
c. Ordering defendant to pay plaintiff the expenses of litigation and
cost of suit . . . (Words in bracket added.)
Upon PCI LEASING's posting of a replevin bond, the trial court issued a writ
of replevin, paving the way for PCI LEASING to secure the seizure and
delivery of the equipment covered by the basic lease agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to
Dismiss, therein arguing that the seizure of the two (2) leased equipment
stripped PCI LEASING of its cause of action. Expounding on the point,
GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on
installment sales of personal property, PCI LEASING is barred from further
 S a l e s P a r t X P a g e | 43

pursuing any claim arising from the lease agreement and the companion the terms and conditions of the basic agreement, the relationship between
contract documents, adding that the agreement between the parties is in the parties is one between an ordinary lessor and an ordinary lessee.
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 In a decision[7] dated December 28, 1998, the trial court granted GIRAFFE's
Civil Code, commonly referred to as the Recto Law. The cited articles motion to dismiss mainly on the interplay of the following premises: 1) the
respectively provide: lease agreement package, as memorialized in the contract documents, is
ART. 1484. In a contract of sale of personal property the price of which is akin to the contract contemplated in Article 1485 of the Civil Code, and 2)
payable in installments, the vendor may exercise any of the following GIRAFFE's loss of possession of the leased equipment consequent to the
remedies: enforcement of the writ of replevin is "akin to foreclosure, " the condition
precedent for application of Articles 1484 and 1485 [of the Civil Code]."
(1) Exact fulfillment of the obligation, should the vendee fail to pay; Accordingly, the trial court dismissed Civil Case No. Q-98-34266, disposing as
follows:
(2) Cancel the sale, should the vendee's failure to pay cover two or more
WHEREFORE, premises considered, the defendant [GIRAFFE] having
installments;
relinquished any claim to the personal properties subject of replevin which
are now in the possession of the plaintiff [PCI LEASING], plaintiff is DEEMED
(3) Foreclose the chattel mortgage on the thing sold, if one has
fully satisfied pursuant to the provisions of Articles 1484 and 1485 of the
been constituted, should the vendee's failure to pay cover two or more
New Civil Code. By virtue of said provisions, plaintiff is DEEMED estopped
installments. In this case, he shall have no further action against the
from further action against the defendant, the plaintiff having recovered thru
purchaser to recover any unpaid balance of the price. Any agreement
(replevin) the personal property sought to be payable/leased on installments,
to the contrary shall be void. (Emphasis added.)
defendants being under protection of said RECTO LAW. In view thereof, this
case is hereby DISMISSED.
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 With its motion for reconsideration having been denied by the trial court in
deprived the lessee of the possession or enjoyment of the thing. 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
It is thus GIRAFFE's posture that the aforequoted Article 1484 of the Civil
not the underlying Lease Agreement, Lease Schedules and the Disclosure
Code applies to its contractual relation with PCI LEASING because the lease
Statements that embody the financial leasing arrangement between the
agreement in question, as supplemented by the schedules documents, is
parties are covered by and subject to the consequences of Articles 1484 and
really a lease with option to buy under the companion article, Article 1485.
1485 of the New Civil Code.
Consequently, so GIRAFFE argues, upon the seizure of the leased equipment
pursuant to the writ of replevin, which seizure is equivalent to foreclosure,
As in the court below, petitioner contends that the financial leasing
PCI LEASING has no further recourse against it. In brief, GIRAFFE asserts in
arrangement it concluded with the respondent represents a straight lease
its Motion to Dismiss that the civil complaint filed by PCI LEASING is
covered by R.A. No. 5980, the Financing Company Act, as last amended by
proscribed by the application to the case of Articles 1484 and 1485, supra, of
R.A. No. 8556, otherwise known as Financing Company Act of 1998,  and is
the Civil Code.
outside the application and coverage of the Recto Law.  To the petitioner,
R.A. No. 5980 defines and authorizes its existence and business.
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.
The recourse is without merit.
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

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
S a l e s P a r t X P a g e | 44
disguised transactions technically tagged as financing lease, like here, as
creating a different contractual relationship. Notable among the Court's
decisions because of its parallelism with this case is BA Finance Corporation
v. Court of Appeals[10] which involved a motor vehicle. Thereat, the Court has
treated a purported financial lease as actually a sale of a movable property
on installments and prevented recovery beyond the buyer's arrearages.
Wrote the Court in BA Finance:
The transaction involved ... is one of a "financial lease" or "financial
leasing," where a financing company would, in effect, initially
purchase a mobile equipment and turn around to lease it to a client
who gets, in addition, an option to purchase the property at the
expiry of the lease period. xxx.
xxx xxx xxx
The pertinent provisions of [RA] 5980, thus implemented, read:
"'Financing companies,' ... are primarily organized for the purpose of
extending credit facilities to consumers ... either by ... leasing of motor
vehicles, ... and office machines and equipment, ... and other movable
property."
"'Credit' shall mean any loan, ... any contract to sell, or sale or contract of
sale of property or service, ... under which part or all of the price is payable
subsequent to the making of such sale or contract; any rental-purchase
contract; .....;"
The foregoing provisions indicate no less than a mere financing scheme
extended by a financing company to a client in acquiring a motor vehicle and
allowing the latter to obtain the immediate possession and use thereof
pending full payment of the financial accommodation that is given.
In the case at bench, xxx. [T]he term of the contract [over a motor
vehicle] was for thirty six (36) months at a "monthly rental" ... (P1,689.40),
or for a total amount of P60,821.28. The contract also contained [a] clause
[requiring the Lessee to give a guaranty deposit in the amount of
P20,800.00] xxx
After the private respondent had paid the sum of P41,670.59, excluding the
guaranty deposit of P20,800.00, he stopped further payments. Putting the
 S a l e s P a r t X P a g e | 45

two sums together, the financing company had in its hands the amount of In the present case, petitioner acquired the office equipment in question for
P62,470.59 as against the total agreed "rentals" of P60,821.28 or an excess their subsequent lease to the respondent, with the latter undertaking to pay
of P1,649.31. a monthly fixed rental therefor in the total amount of P292,531.00, or a total
of P10,531,116.00 for the whole 36 months. As a measure of good faith,
The respondent appellate court considered it only just and equitable for the respondent made an up-front guarantee deposit in the amount of
guaranty deposit made by the private respondent to be applied to his P3,120,000.00. The basic agreement provides that in the event the
arrearages and thereafter to hold the contract terminated. Adopting the respondent fails to pay any rental due or is in a default situation, then the
ratiocination of the court a quo, the appellate court said: petitioner shall have cumulative  remedies, such as, but not limited to, the
following:[13]
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
1. Obtain possession of the property/equipment;
fairness, justice and equity. The plaintiff should not be allowed to
unduly enrich itself at the expense of the defendant. xxx This is
2. Retain all amounts paid to it. In addition, the guaranty deposit may
even more compelling in this case where although the transaction,
be applied towards the payment of "liquidated damages";
on its face, appear ostensibly, to be a contract of lease, it is actually
a financing agreement, with the plaintiff financing the purchase of
3. Recover all accrued and unpaid rentals;
defendant's automobile .... The Court is constrained, in the interest of
truth and justice, to go into this aspect of the transaction between the
4. Recover all rentals for the remaining term of the lease had it
plaintiff and the defendant ... with all the facts and circumstances
not been cancelled, as additional penalty;
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.
5. Recovery of any and all amounts advanced by PCI LEASING
for GIRAFFE's account xxx;
xxx xxx xxx
Considering the factual findings of both the court a quo and the appellate
6. Recover all expenses incurred in repossessing, removing, repairing
court, the only logical conclusion is that the private respondent did
and storing the property; and,
opt, as he has claimed, to acquire the motor vehicle, justifying then
the application of the guarantee deposit to the balance still due and
7. Recover all damages suffered by PCI LEASING by reason of the
obligating the petitioner to recognize it as an exercise of the option
default.
by the private respondent. The result would thereby entitle said
respondent to the ownership and possession of the vehicle as the
In addition, Sec. 6.1 of the Lease Agreement states that the guaranty
buyer thereof. We, therefore, see no reversible error in the ultimate
deposit shall be forfeited in the event the respondent, for any reason,
judgment of the appellate court.[11] (Italics in the original; underscoring
returns the equipment before the expiration of the lease.
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.
At bottom, respondent had paid the equivalent of about a year's lease
rentals, or a total of P3,510,372.00, more or less. Throw in the guaranty
deposit  (P3,120,000.00) and the respondent had made a total cash
outlay of P6,630,372.00 in favor of the petitioner. The replevin-seized
leased equipment had, as alleged in the complaint, an estimated   residual
value of P6,900.000.00 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 P13,530,372.00 (P3,510,372.00 + P3,120,000.00 + P6,900.000.00 =
P13,530,372.00).
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, 1996[14] approving in the latter's favor a
lease facility, was P8,100,000.00. Subtracting the acquisition cost
of P8,100,000.00 from the total amount, i.e., P13,530,372.00, creditable to
the respondent, it would clearly appear that petitioner realized a gross
income of P5,430,372.00 from its lease transaction with the respondent.
The amount of P5,430,372.00 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 letter [15] fixed the amount of
P8,248,657.47 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 P8,248,657.47, then it would end
up paying a total of P21,779,029.47 (P13,530,372.00 + P8,248,657.47 =
P21,779,029.47) for its use - for a year and two months at the most - of the
equipment. All in all, for an investment of P8,100,000.00, the petitioner
stands to make in a year's time, out of the transaction, a total of
P21,779,029.47, or a net of P13,679,029.47, if we are to believe its
outlandish legal submission that the PCI LEASING-GIRAFFE Lease
Agreement  was an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once practical and
salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate financing
companies' operations with the end in view of strengthening their critical role
in providing credit and services to small and medium enterprises and to
curtail acts and practices prejudicial to the public interest, in general, and to
their clienteles, in particular. [16] As a regulated activity, financing
arrangements are not meant to quench only the thirst for profit. They serve
a higher purpose, and R.A. No. 8556 has made that abundantly clear.
S a l e s P a r t X P a g e | 46
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 letter [17] sent to
the respondent, petitioner fashioned its claim in the alternative: payment  of
the full amount of P8,248,657.47, 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
P8,248,657.47 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 P8,248,657.47 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
S a l e s P a r t X P a g e | 47
vendors of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the object of the sale
from passing to the vendee until and unless the price is fully paid. As this
Court noted in Vda. de Jose v. Barrueco:[21]
Sellers desirous of making conditional sales of their goods, but who do not
wish openly to make a bargain in that form, for one reason or another, have
frequently resorted to the device of making contracts in the form of
leases either with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent throughout the
term is paid, title shall thereupon vest in the lessee. It is obvious
that such transactions are leases only in name. The so-called rent
must necessarily be regarded as payment of the price in installments since
the due payment of the agreed amount results, by the terms of the bargain,
in the transfer of title to the lessee.
In another old but still relevant case of U.S. Commercial v. Halili,[22] a lease
agreement was declared to be in fact a sale of personal property by
installments. Said the Court:
. . . There can hardly be any question that the so-called contracts of lease on
which the present action is based were veritable leases of personal property
with option to purchase, and as such come within the purview of the above
article [Art. 1454-A of the old Civil Code on sale of personal property by
installment]. xxx
Being leases of personal property with option to purchase as contemplated in
the above article, the contracts in question are subject to the provision that
when the lessor in such case "has chosen to deprive the lessee of the
enjoyment of such personal property," "he shall have no further action"
against the lessee "for the recovery of any unpaid balance" owing by the
latter, "agreement to the contrary being null and void."
In choosing, through replevin, to deprive the respondent of possession of the
leased equipment, the petitioner waived its right to bring an action to
recover unpaid rentals on the said leased items. Paragraph (3), Article 1484
in relation to Article 1485 of the Civil Code, which we are hereunder re-
reproducing, cannot be any clearer.
 S a l e s P a r t X P a g e | 48

ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
xxx xxx xxx
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
ART. 1485. The preceding article shall be applied to contracts purporting to
be leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing.
amount claimed by the petitioner as sued upon herein (for a total of
P21,779,029.47), 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. 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.
SO ORDERED.

As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals,

[23]
 the remedies provided for in Article 1484 of the Civil Code are alternative,
not cumulative. The exercise of one bars the exercise of the others. This
limitation applies to contracts purporting to be leases of personal property
with option to buy by virtue of the same Article 1485. The condition that the
lessor has deprived the lessee of possession or enjoyment of the thing for
the purpose of applying Article 1485 was fulfilled in this case by the filing by
petitioner of the complaint for a sum of money with prayer for replevin to
recover possession of the office equipment. [24] By virtue of the writ of seizure
issued by the trial court, the petitioner has effectively deprived respondent of
their use, a situation which, by force of the Recto Law, in turn precludes the
former from maintaining an action for recovery of "accrued rentals" or the
recovery of the balance of the purchase price plus interest. [25]
The imperatives of honest dealings given prominence in the Civil Code under
the heading: Human Relations, provide another reason why we must hold
the petitioner to its word as embodied in its demand letter. Else, we would
witness a situation where even if the respondent surrendered the equipment
voluntarily, the petitioner can still sue upon its claim. This would be most
unfair for the respondent. We cannot allow the petitioner to renege on its
word. Yet more than that, the very word "or" as used in the letter
conveys distinctly  its intention not to claim both the unpaid balance and the
equipment. It is not difficult to discern why: if we add up the amounts paid
by the respondent, the residual value of the property recovered, and the
 S a l e s P a r t X P a g e | 49

LEGARDA HERMANOS AND JOSE LEGARDA, petitioners, vs. FELIPE

SALDAÑA and COURT OF APPEALS (FIFTH DIVISION)**
respondents.

Civil Law; Sales; Where one purchases from a subdivision owner two lots and
has paid more than the value of one lot, the former is entitled to a certificate
of title to one lot in case of default.—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. Even considering
respondent as having defaulted after February, 1956, when he suspended
payments after the 95th installment, he had as of then 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.

Same; Same.—The Court’s doctrine in the analogous case of J.M. Tuason &
Co., Inc. vs. Javier is fully applicable to the present case, with the
respondent at bar being granted lesser benefits, since no rescission of
contract was therein permitted.

Same; Same; Substantial performance of contractual obligations in good

faith.—Under article 1234 of the Civil 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.” The decision appealed from is upheld in the interest of justice
and equity. (Citing J.M. Tuason & Co., Inc. vs. Javier, 31 SCRA 829).

TEEHANKEE, J.:
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.  continue paying the balance due on said lots."
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 ……………….. P1,889.78
interests
"To …………………. 1,682.28
principal
Total P3,582.06"[1]
………………………..
It is equally undisputed that after February, 1956 up to the filing of
S a l e s P a r t X P a g e | 50
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
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 plaintiff's 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 due on both lots was P1,317.72,which
was even less than the value of one lot.  We will consider as fully paid by the
plaintiff at least one of the two lots, at the choice of the defendants.This is
more in line with good conscience than a total denial to the plaintiff of a little
token of what he has paid the defendant Legarda Hermanos."[4]
Hence, the present petition for review, wherein petitioners insist on their
right of cancellation under the "plainly valid written agreements which
constitute the law between the parties" as against "the broad principles of
equity and justice" applied by the appellate court.  Respondent on the other
hand while adhering to the validity of the doctrine of the Caridad Estates
cases[5] which recognizes the right of a vendor of land under a contract to
sell to cancel the contract upon default, with forfeiture of the installments
paid as rentals, disputes its applicability herein, contending that here
petitioners-sellers were equally in default as the lots were "completely under
water" and "there is neither evidence nor a finding that the petitioners in fact
cancelled the contracts previous to receipt of respondent's letter." [6]
The 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
S a l e s P a r t X P a g e | 51
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 then 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.
Javier[8] 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.
S a l e s P a r t X P a g e | 52
PRISCILLA ZAFRA ORBE, petitioner, vs. FILINVEST LAND, INC.,
respondent.
Civil Law; Maceda Law; Realty Installment Buyer Act; Republic Act (RA) No.
6552, the Realty Installment Buyer Act or more popularly referred 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.”—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.” It
“delineat[es] the rights and remedies of . . . buyers and protect[s] them from
one-sided and pernicious contract stipulations”: 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 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 oftentimes 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.

Same; Same; Same; 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.—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: (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 percent of the total payments made and, after
five years of installments, an additional five percent every year but not to
exceed ninety percent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value
to the buyer. Down payments, deposits or options on the contract shall be
included in the computation of the total number of installment payments
made.
Same; Same; Same; Section 4 governs situations “where less than two (2)
years of installments were paid.”—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.
S a l e s P a r t X P a g e | 53
Same; Same; Same; When Section 3 speaks of paying ‘‘at least two (2) years
of installments,” it refers to the equivalent of the totality of payments
diligently or consistently made throughout a period of two years.—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, 711 SCRA 163 (2013): 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 from unduly claiming the rights provided in Section 3 of R.A.
6552. 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. It refers to the proportionate value of the installments made, as
well as payments having been made for at least two (2) years.
Same; Same; Same; Laws should never be so interpreted as to produce
results that are absurd or unreasonable. Sustaining petitioner’s contention
that she 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.—Laws should never be so interpreted as to produce results
that are absurd or unreasonable. Sustaining petitioner’s contention that she
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.
Same; Same; Same; Supreme Court (SC) reckons petitioner’s satisfaction of
the requisite two (2) years’ or twenty-four (24) months’ worth of installments
using as divisor the monthly amortizations due from petitioner.—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
monthly 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.
Same; Same; Same; For cancellations under Section 4 to be valid, three (3)
requisites must concur. First, the buyer must have been given a sixty (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 thirty (30) days of the buyer’s receipt
of the notice of cancellation.—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.
Notarized Documents; 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.”—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.”
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.”
S a l e s P a r t X P a g e | 54
Same; Maceda Law; 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.—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
acknowledgment is necessary in the customary rendition of public
documents, with greater reason should an acknowledgment be imperative in
notices of cancellation or demands for rescission made under Sections 3 and
4 of the Maceda Law.
Civil Law; Sales; 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.—
Through an acknowledgment, 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 bylaws.
Same; Same; Even if respondent’s notarization by jurat and not by
acknowledgment 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.—Even if respondent’s notarization by jurat and not by
acknowledgment 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. 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: (a) at least one
current identification document issued by an official agency bearing the
photograph and signature of the individual; 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.
Same; Contracts; Cancellation of Contracts; Realty Exchange Venture Corp.
v. Sendino, 233 SCRA 665 (1994), explained, “Since Republic Act (RA) No.
6552 mandates cancellation by notarial act — among other requirements —
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.”—Marina
Properties v. Court of Appeals, 294 SCRA 273 (1998), was unequivocal: “[I]n
order to effect the cancellation of a contract, a notarial cancellation must first
be had.” Realty Exchange Venture Corp. v. Sendino, 233 SCRA 665 (1994),
explained, “Since R.A. 6552 mandates cancellation by notarial act — among
other requirements — 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.” In Active Realt and Development v. Daroya, 382 SCRA 152
(2002), where the seller “failed to send a notarized notice of cancellation,”
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.”
Notary Public; 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.”—In ordinary circumstances, where
notarization serves merely to convert a private document into a public
document, notaries public have been admonished about faithfully observing
S a l e s P a r t X P a g e | 55
the rules governing notarial acts: “Faithful observance and utmost respect of
the legal solemnity of an oath in an acknowledgment or jurat is sacrosanct.”
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.
Remedial Law; Civil Procedure; Verification; The verification is only a formal,
not a jurisdictional, requirement that the Supreme Court (SC) may waive.—
Galicto v. Aquino III, 667 SCRA 150 (2012), Coca-Cola Bottlers Philippines,
Inc. v. Dela Cruz, 608 SCRA 16 (2009), Victorio-Aquino v. Pacific Plans, Inc.,
744 SCRA 480 (2014), and Reyes v. Glaucoma Research Foundation, Inc.,
759 SCRA 120 (2015), 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.” Likewise, this Court considered it
more appropriate to not hinder the consideration of pleadings in order that
party-litigants may exhaustively plead their cases.
Civil Law; Maceda Law; Realty Installment Buyer Act; 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.—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 acknowledgment 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 bylaws. With
the Maceda Law’s avowed purpose of extending benefits to disadvantaged
buyers and liberating them from onerous and oppressive conditions, it
 S a l e s P a r t X P a g e | 56

necessarily follows that the Maceda Law’s permission for sellers to cancel Housing and Land Use Regulator; Board (HLURB Board of Commissioners),
contracts becomes available only when its conditions are heedfully satisfied. and of Housing and Land Use Arbiter Leonard Jacinto A. Soriano (Arbiter
No liberal construction of the Maceda Law can be made in favor of the seller Soriano) of the Expanded National Capital Region Field Office of the Housing
and at the same time burdening the buyer. and Land Use Regulatory Board (HLURB Field Office). It held that petitioner
Priscilla Zafra Orbe (Orbe) is entitled to the benefits of Section 3 of Republic
Same; Legal Interest; In view of Nacar v. Gallery Frames, 703 SCRA 439 Act No. 6552.6 The assailed Court of Appeals July 3, 2013 Resolution denied
(2013), this amount shall be subject to legal interest at the rate of twelve Orbe's Motion for Reconsideration.7
percent (12%) per annum reckoned from the filing of petitioner’s Complaint
until June 30, 2013; and six percent (6%) per annum from July 1, 2013 until Sometime in June 2001, Orbe entered into a purchase agreement with
fully paid.—Considering that it did not validly cancel its contract with respondent Filinvest Land, Inc. (Filinvest) over a 385-square-meter lot
petitioner and has also sold the lot to another person, it is proper that identified as Lot 1, Block 10, Phase 1, Highlands Pointe, Taytay, Rizal. The
total contract price was P2,566,795.00, payable on installment basis 8 under
respondent be ordered to refund petitioner. This refund shall not be the full,
the following terms:
actual value of the lot resold, as was ordered in Active and Gatchalian, lest
petitioner be unjustly enriched. Rather, it shall only be the amount actually
paid by petitioner to respondent, i.e., P608,648.20. In view of Nacar v. Total Contract Price   : [P]2,566,795.00
Gallery Frames, 703 SCRA 439 (2013), this amount shall be subject to legal Reservation Fee   : [P]20,000.00
interest at the rate of twelve percent (12%) per annum reckoned from the Down Payments   : [P]493,357.00
filing of petitioner’s Complaint until June 30, 2013; and six percent (6%) per
annum from July 1, 2013 until fully paid. Payable on installments   : [P]54,818.00 monthly
  from 8/4/01-4/4/02  
DECISION Balance   : [P]2,053,436.00
Payable on
LEONEN, J.:    
installments

When Republic Act No. 6552 or the Maceda Law speaks of paying "at least   for a period of 7 years  
two years of installments" in order for the benefits under its Section 31 to   from 5/8/024/8/09  
become available, it refers to the buyer's payment of two (2) years' worth of
First year   : [P]27,936.84 monthly
the stipulated fractional, periodic payments due to the seller. When the
buyer's payments fall short of the equivalent of two (2) years' worth of Second year   : [P]39,758.84 monthly
installments, the benefits that the buyer may avail of are limited to those Third year   : [P]41,394.84 monthly
under Section 4.2 Should the buyer still fail to make payments within Section
4's grace period, the seller may cancel the contract. Any such cancellation is Fourth year to Seventh
  : [P]42,138.84 monthly9
ineffectual, however, unless it is made through a valid notarial act. year
From June 17, 2001 to July 14, 2004, Orbe paid a total of P608,648.20.
This resolves a Petition for Review on Certiorari 3 under Rule 45 of the 1997 These were mainly through several Metrobank checks, for which Filinvest
Rules of Civil Procedure praying that the assailed October 11, 2012 issued official receipts.10 Check payments were made as follows:
Decision4 and July 3, 2013 Resolution5 of the Court of Appeals in CA-G.R. SP METROBANK CHECK NO. DATE                      AMOUNT  
No. 118285 be reversed and set aside.
Metro Bank Check No.
June 17, 2001 [P]20,000.00  
The assailed Court of Appeals October 11, 2012 Decision reversed the prior 0306533
rulings of the Office of the President, the Board of Commissioners of the
 S a l e s P a r t X P a g e | 57

Metro Bank Check No. update but you failed to settle your account. Accordingly, please be informed
July 29, 2001 [P]54,818.00   that we are now hereby canceling your account effective thirty (30) days
0306544
from receipt hereof,
Metro Bank Check No.
Aug. 29, 2001 [P]54,818.00  
0306545 Very truly yours, 
Metro Bank Check No.
Sept. 29, 2001 [P]54,818.00  
0306546 COLLECTION DEPARTMENT
Metro Bank Check No.
May 8, 2002 [P]100,000.00   By:
032()243
Metro Bank Check No. _________________(sgd.)_________________
May 22, 2002 [P]100,000.00  
0320244                  MA. LOUELLA D. SENIA
Metro Bank Check No. March 26,
[P]80,000.00   Republic of the Philippines ) 
0370882 2003
Makati City                      )S.S.
Metro Bank Check No.
April 26, 2003 [P]75,789.00  
0370883 SUBSCRIBED AND SWORN to before me this OCT 06 2004, affiant exhibiting
Metro Bank Check No. to me Community Tax Certificate No. 05465460 issued on February 09, 2004
Feb. 12, 2004 [P]37,811.00   at Manila.
0401000
Metro Bank Check No.
July 14, 2004 [P]30,000.0011                (sgd.)
0531301
AVELIO L. SALCEDO 
Orbe was unable to make further payments allegedly on account of financial     NOTARY PUBLIC
difficulties.12 UNTIL DECEMBER 31, 2004
PTR NO. 3703389 3/01/04 SAN JUAN
On October 4, 2004, Filinvest sent a notice of cancellation, 13 which was IBP N0.609984 2/04/04 PASIG CITY
received by Orbe on October 18, 2004.14 The notice and its accompanying
jurat read: Doc. No. 314
PRISCILLA Z. ORBE Page No. 64
#107 Morena St. Villaverde Homes Book No. XVIII 
Novaliches, Q,C. Series of 200415

                Re: Account No.    6181426 Noting that "efforts . . . to seek for a reconsideration of said cancellation . . .
                      Project             HIGH proved futile," and that the parcel had since been sold by Filinvest to a
                      Phase               1 certain Ruel Ymana "in evident bad faith,"16 Orbe filed against Filinvest a
                      Block               10 Complaint for refund with damages dated November 13, 2007 before the
                      Lot                   1 HLURB Field Office.17 Orbe emphasized that she had made payments
"beginning June, 2001 up to October, 2004."18 She further asserted that the
Gentlemen (sic): October 4, 2004 Notice did not amount to an "effective cancellation by
notarial act."19
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 In its Answer with Counterclaim, Filinvest asserted that Orbe failed to
make 24 monthly amortization payments on her account, and thus, could not

benefit from Section 3 of Republic Act No. 6552. According to Filinvest, the
P608,648.20 paid by Orbe from June 17, 2001 to July 14, 2004 covered only
the reservation fee, down payment, and late payment charges, exclusive of
the monthly amortization payments stipulated in the Purchase Agreement. 20
In his July 25, 2008 Decision,21 Arbiter Soriano of the HLURB Field Office
ruled in favor of Orbe. He held that since Orbe made payments "from 17
June 2001 to 14 July 2004, or a period of more than two years,"22all of which
should be credited to the principal,23 she was entitled to a refund of the cash
surrender value equivalent to 50% of the total payments she had made,
pursuant to Section 3 of Republic Act No. 6552.24
Filinvest appealed to the HLURB Board of Commissioners. 25
In its April 15, 2009 Decision,  the HLURB Board of Commissioners affirmed
26
Arbiter Soriano's Decision.27 It disagreed with Arbiter Soriano's conclusion
that Orbe had paid two (2) years' installments. It specifically noted rather,
that the buyer's payments fell two (2) months short of the equivalent of two
years of installments.28 It added, however, that "[e]quity . . . should come in
especially where, as here, the payment period is relatively short and the
monthly installment is relatively of substantial amounts." 29 Thus, it concluded
that Orbe was still entitled to a 50% refund.30
Filinvest then appealed to the Office of the President. 31
In its February 4, 2011 Decision,32 the Office of the President sustained the
conclusion that Orbe was entitled to a 50% refund. It disagreed with the
HLURB Board of Commissioners' finding that Section 3's benefits were
available to Orbe purely as a matter of equity. It agreed instead with Arbiter
Soriano's reliance on how Orbe "ha[d] made installment payments for more
than two (2) years."33
Filinvest made another appeal to the Court of Appeals, 34 arguing that:
[W]hat [Republic Act No. 6552] requires for refund of the cash surrender
value is not the length of time of at least two years from the first payment to
the last payment, but the number of installments paid, that is, at least two
ears of installments or twenty[-]four (24) monthly installments paid. 35
Thus, Section 3, which requires the refund of the cash surrender value, will
only apply when the buyer has made at least 24 installment payments. 36
In its assailed October 11, 2012 Decision,37 the Court of Appeals reversed the
prior rulings of the Office of the President, of the HLURB Board of
S a l e s P a r t X P a g e | 58
Commissioners, and of Arbiter Soriano; and dismissed Orbe's Complaint. 38
The Court of Appeals reasoned that the phrase "two years of installments"
under Section 3 means that total payments made should at least be
equivalent to two years' worth of installments.39 Considering that Orbe's total
payment of P608,648.20 was short of the required two (2) years' worth of
installments, she could not avail of the benefits of Section 3. 40 What applied
instead was Section 4, enabling a grace period of 60 days from the day the
installment became due and further enabling the seller to cancel or rescind
the contract through a notarial act, should the buyer still fail to pay within
the grace period.41 It found Filinvest to have sent Orbe a valid, notarized
notice of cancellation thereby precluding any further relief.42
In its assailed July 3, 2013 Resolution,43 the Court of Appeals denied Orbe's
Motion for Reconsideration.
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,46Pagtalunan v. Vda. de Manzano,47Active Realty and
Development v. Daroya,48Associated 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 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":
S a l e s P a r t X P a g e | 59
Section 3. In all transactions or contracts involving the sale or financing of
real estate on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and sales to
tenants under Republic Act Numbered Thirty eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, where
the buyer has paid at least two years of installments, the buyer is entitled to
the following rights in case he defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid installments due within
the total grace period earned by him, which is hereby fixed at the rate
of one month grace period for every one year of installment payments
made: Provided, That this right shall be exercised by the buyer only
once in every five years of the life of the contract and its extensions, if
any.
(b) If the contract is cancelled, the seller shall refund to the buyer the
cash surrender value of the payments on the property equivalent to
fifty per cent of the total payments made and, after five years of
installments, an additional five per cent every year but not to exceed
ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.
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
S a l e s P a r t X P a g e | 60
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. 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
S a l e s P a r t X P a g e | 61
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:

(a) appears in person before the notary public and presents an integrally
complete instrument or document;
(b) is attested to be personally known to the notary public or identified by
the notary public through competent evidence of identity as defined by
these Rules; and
(c) 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, 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:
S a l e s P a r t X P a g e | 62
(a) appears in person before the notary public and presents an instrument
or document;
(b) is personally known to the notary public or identified by the notary
public through competent evidence of identity as defined by these
Rules;
(c) signs the instrument or document in the presence of the notary; and
(d) takes an oath or affirmation before the notary public as to 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:
(a) at least one current identification document issued by an official
agency bearing the photograph and signature of the individual; 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.
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. Almo70 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 Appeals72 was unequivocal: "[I]n order to effect
the cancellation of a contract, a notarial cancellation must first be
had."73Realty Exchange Venture Corp. v. Sendino74 explained, "Since R.A.
6552 mandates cancellation by notarial act - among other requirements
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
S a l e s P a r t X P a g e | 63
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,80Coca Cola Bottlers Philippines, Inc. v. Dela Cruz,81Victorio-
Aquino v. Pacific Plans, Inc.,82 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 developer had no choice but to accept payment. However,  the defaulting
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. Angeles88 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,89Pagtalunan v. Vda. de Manzano,90Active 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
S a l e s P a r t X P a g e | 64
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
buyer was unable to exercise this right because the developer sold
the subject 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 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 the filing of the complaint, until fully paid.
Contracts to Sell Nos. 2271 and 2272 shall be deemed cancelled 30 days
after Angeles' receipt of GRI's full payment of the cash surrender value. No
rent is further charged upon Angeles as GRI already had possession of the
subject properties on 10 October 2006.94 (Emphasis supplied)
S a l e s P a r t X P a g e | 65
This case is most akin to Active. There, as in this case, the subject property
was actually sold by the seller to a third
person. Gatchalian mirrored Active in discerning an equitable ruling in the
event that its subject properties had been sold by the seller to another
person.
It was Active that originally identified two (2) options where a seller wrongly
cancelled a contract with a buyer and had since sold that property to a third
person, refunding the actual95 value of the lot sold plus interest or delivering
a substitute lot to the buyer:
Thus, for failure to cancel the contract in accordance with the procedure
provided by law, we hold that the contract to sell between the parties
remains valid and subsisting. Following Section 3(a) of R.A. No. 6552,
respondent has the right to offer to pay for the balance of the purchase
price, without interest, which she did in this case. Ordinarily, petitioner would
have had no other recourse but to accept payment. However, respondent
can no longer exercise this right as the subject lot was already sold by the
petitioner to another buyer which lot, as admitted by the petitioner, was
valued at P1,700.00 per square meter. As respondent lost her chance to pay
for the balance of the P875,000.00 lot, it is only just and equitable that the
petitioner be ordered to  refund to respondent the actual value of the
lot resold, i.e., P875,000.00, with 12% interest per annum computed from
August 26, 1991 until fully paid or to deliver a substitute lot at the option of
the respondent.96(Emphasis 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 this case.
Considering that it did not validly cancel its contract with petitioner and has
also sold the lot to another person, it is proper that respondent be ordered to
refund petitioner. This refund shall not be the full, actual value of the lot
resold, as was ordered in Active and Gatchalian, lest petitioner be unjustly
enriched. Rather, it shall only be the amount actually paid by petitioner to
respondent, i.e., P608,648.20. In view of Nacar v. Gallery Frames, this
amount shall be subject to legal interest at the rate of twelve percent (12%)

per annum reckoned from the filing of petitioner's Complaint 100 until June 30,
2013; and six percent (6%) per annum from July 1, 2013 until fully paid. 101
WHEREFORE, the Petition for Review on Certiorari is GRANTED.
The assailed October 11, 2012 Decision and July 3, 2013 Resolution of the
Court of Appeals in CA-G.R. SP No. 118285 are REVERSED and SET
ASIDE.
Respondent Filinvest Land, Inc. is ordered to refund petitioner Priscilla Zafra
Orbe the amount of P608,648.20. This refund shall earn legal interest at
twelve percent (12%) per annum from November 17, 2004 to June 30, 2013,
and six percent (6%) per annum, reckoned from July 1, 2013 until fully paid.
This case is REMANDED to the Housing and Land Use Regulatory Board
Expanded National Capital Regional Field Office FOR PROPER
EXECUTION.
SO ORDERED.
Velasco, Jr., (Chairperson), Bersamin, Martires, and Gesmundo, JJ., concur.
JESTRA DEVELOPMENT AND MANAGEMENT CORPORATION,
petitioner, vs. DANIEL PONCE PACIFICO, represented by his
attorney-in-fact Jordan M. Pizarras, respondent.
Housing and Land Use Regulatory Board; RA No. 6552 was enacted to
protect buyers of real estate on installment against onerous and oppressive
conditions.—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
S a l e s P a r t X P a g e | 66
least two years installments have already been paid, to refund the cash
surrender value of the payments. Jestra Development and Management
Corporation vs. Pacifico, 513 SCRA 413, G.R. No. 167452 January 30, 2007
DECISION
CARPIO MORALES, J.:
On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a Reservation
Application[1] with Fil-Estate Marketing Association for the purchase of a
house and lot located at Lot 28, Block 3, Phase II, Jestra Villas, Barangay La
Huerta, Municipality of Parañaque, Metro Manila (the property), and paid the
reservation fee of P20,000.
Under the Reservation Application, the total purchase price of the property
was P2,500,000, and the down payment equivalent to 30% of the purchase
price or P750,000 was to be paid interest-free in six monthly installments
due every fifth of the month starting July 1996 until December 1996.  As the
P20,000 reservation fee formed part of the down payment, the monthly
installment on the down payment was fixed at P121,666.66.
Also under the Reservation Application, upon full payment of the 30% down
payment by Pacifico, he was to sign a contract to sell with the owner and
developer of the property, Joprest Development and Management
Corporation (now Jestra Development and Management Corporation,
hereafter Jestra).  And the 70% balance on the purchase price or P1,750,000
was to be payable in 10 years, to bear interest at 21% per annum, at a
monthly installment of P34,982.50.  When the payment of the installments
on the 70% balance should commence, the Reservation Application was
silent.
Unable to comply with the schedule of payments, Pacifico requested Jestra
to allow him to make periodic payments on the down payment “in an amount
that he could afford,” to which Jestra acceded provided that late payment
penalties/surcharges[2] 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. 83[3] 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)  monthly amortizations from January to December 1998.  The checks for
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 letter[4] 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 P444,738.88[5] 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
S a l e s P a r t X P a g e | 67
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
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 letter[9] of March 31, 1998, denied Pacifico’s request to suspend
payment and for the return of the postdated checks.  It, however, gave him
until April 15, 1998 to sell the property failing which it warned him that it
would be constrained to re-open it for sale.
Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May
1, 1998, notifying him that it was, within 30 days after his receipt thereof,
exercising its right to cancel the Contract to Sell.  Pacifico received the notice
on May 13, 1998.
In a separate move, Jestra through its Credit and Collection Manager sent
Pacifico a letter dated May 27, 1998, demanding payment of the total
amount of P209,377.75 covering monthly amortizations from January 30 to
May 30, 1998 inclusive of penalties.  And it gave him until June 1, 1998 to
settle his account, failing which the Contract to Sell would be automatically
cancelled and it would re-open the property for sale.[10]

On February 24, 1999, Pacifico filed a complaint before the Housing and
Land Use Regulatory Board (HLURB) against Jestra, docketed as HLURB Case
No. REM-122499-10378, claiming that despite his full payment of the down
payment, Jestra failed to deliver to him the property within 90 days as
provided in the Contract to Sell dated March 6, 1997, and Jestra instead sold
the property to another buyer in October of 1998.[11]
Pacifico further claimed in his complaint that upon learning of the double
sale, he, through his lawyer, demanded that Jestra deliver the property to
him but it failed to do so without just and valid cause.
Pacifico thus prayed that, among others things, judgment be rendered
declaring the second sale a nullity, ordering Jestra to deliver the property to
him and to pay him P11,000 a month from July 1997 until delivery.
By Decision[12] 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
S a l e s P a r t X P a g e | 68
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
denied[15] Jestra’s motion for reconsideration.
By Order[16] 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 Order[17] 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 Decision[18] dated January 31, 2005, affirmed the Orders
of the OP.
Its motion for reconsideration having been denied by CA Resolution [19] of
March 16, 2005, Jestra (hereafter petitioner) comes before this Court on a
petition for review, faulting the appellate court for:
I. . . . adopting the OP’s conclusion that penalty payments
should be included in computing the total number of
installment payments made by a buyer (in relation to the
payment of a cash surrender value upon cancellation of a
contract to sell) in spite of its exclusion from the items to be
included in computing the two (2) years installment
payments as provided in RA 6552
II. . . . adopting the OP’s conclusion that petitioner failed to
deliver possession of the subject property to respondent
upon his full payment of the downpayment [sic] and that
petitioner’s act of canceling the contract to sell was
unconscionable despite being allowed under RA 6552.

RA No. 6552 was enacted to protect buyers of real estate on installment
against onerous and oppressive conditions.  While the seller has under the
Act the option to cancel the contract due to non-payment of installments, he
must afford the buyer a grace period to pay them and, if at least two years
installments have already been paid, to refund the cash surrender value of
the payments.  Thus Section of the Act provides:
SECTION 3.   In all transactions or contracts involving the sale or financing
of real estate on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and sales to
tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, where
the buyer has paid at least two years of installments, the buyer is entitled to
the following rights in case he defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid installments due within
the total grace period earned by him which is hereby fixed at the rate of one
month grace period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer only once in every
five years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty per cent
of the total payments made, and, after five years of installments, an
additional five per cent every year but not to exceed ninety per cent of the
total payments made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.
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 payment [20] of the 30% down
payment.  It thus submits that the amount of P76,600 does not form part of
S a l e s P a r t X P a g e | 69
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 neither P34,983 nor P39,468, but P121,666.66, the monthly
installment on the down payment.
The P750,000 down payment was to be paid in six monthly installments.  If
the down payment of P750,000 is to be deducted from the total payment of
P846,600, the remainder is only P96,600.  Since respondent was able to pay
the down payment in full eleven (11) months after the last monthly
installment was due, and the sum of P76,600 representing penalty for delay
of payment is deducted from the remaining P96,600, only a balance of
P20,000 remains.
As respondent failed to pay at least two years of installments, he is not,
under above-quoted Section 3 of RA No. 6552, entitled to a refund of the
cash surrender value of his payments.  What applies to the case instead is
Section 4 of the same law, viz:
SECTION 4.   In case where less than two years of installments were paid,
the seller shall give the buyer a grace period of not less than sixty days from
the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act.  (Underscoring supplied)
In Fabrigas v. San Francisco del Monte, Inc.,  this Court described the
[21]
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.  contract after thirty days from receipt by private respondent of the notice of
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.  Instead, he requested for suspension of
payment and for time to dispose of the property to recover his investment.
Respondent admits that petitioner was justified in canceling the contract to
sell via the notarial Notice of Cancellation which he received on May 13,
1998.  The contract was deemed cancelled[22] 30 days from May 13, 1998 or
on June 12, 1998.
WHEREFORE, the petition is GRANTED.  The assailed Decision and
Resolution dated January 31, 2005 and March 16, 2005 of the Court of
Appeals are hereby REVERSED and SET ASIDE.  The complaint of
respondent, Daniel Ponce Pacifico, is DISMISSED.
LUISA F. MCLAUGHLIN, petitioner, vs. THE COURT OF APPEALS AND
RAMON FLORES, respondents.
Sale; Equity; Damages; Contracts; After a purchaser by installment has paid
a substantial portion of the purchase price, it would be inequitable to have
the amount paid forfeited as liquidated damages, particularly if tender of
payment was made.—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 (P148,126.97 according to private respondent in his brief)
already paid by him under said contract, excluding the monthly rentals paid,
S a l e s P a r t X P a g e | 70
forfeited in favor of petitioner, particularly after private respondent had
tendered the amount of P76,059.71 in full payment of his obligation.
Same; Same; Same; Same; Under the Maceda Law (R.A. 6552) a lot
installment buyer is given a grace period to pay installments in arrears. In
the case at bar, the grace period has not yet expired when a tender of
payment was made.—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
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 granted by law.
Same; Obligations; Contracts; Offer of payment by certified check is valid
tender of payment.—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.
Same; Same; Same; Where an obligor fails to follow a valid tender of
payment with a court consignation, the court may allow him time to pay his
obligation without rescinding the deed of sale.—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 P1,000.00 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.

Same; Same; Same; Same.—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 P1,000.00 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
FERIA, Acting 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.  "That in the event of execution all payments made by defendant (private
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 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.
S a l e s P a r t X P a g e | 71
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 (P1,000.00) 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.
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 P1,000.00.  condition of the contract as warrants rescission for nonperformance.
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 P1,000.00 back rentals since June
1980 and the eviction of private respondent.
On November 14, 1980, the trial court granted the motion for writ of
execution.
On November 17, 1980, private respondent filed a motion for reconsideration
tendering at the same time a Pacific Banking Corporation certified manager's
check in the amount of P76,059.71, payable to the order of petitioner and
covering the entire obligation including the installment due on December 31,
1980.  However, the trial court denied the motion for reconsideration in an
order dated November 21, 1980 and issued the writ of execution on
November 25, 1980.
In an order dated November 27, 1980, the trial court granted petitioner's ex-
parte motion for clarification of the order of execution rescinding the deed of
conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a
petition for certiorari and prohibition assailing the orders dated November 21
and 27, 1980.
As initially stated above, the appellate court nullified and set aside the
disputed orders of the lower court.  In its decision, the appellate court ruled
in part as follows:
"The issue here is whether respondent court committed a grave abuse of
discretion in issuing the orders dated November 21, 1980 and November 27,
1980.
S a l e s P a r t X P a g e | 72
"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
"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. v. 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
(P148,126.97 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
S a l e s P a r t X P a g e | 73
non-payment of the stipulated installments but requires a grace period after
at least two years of regular installment payments x x x." (86 SCRA 305,
329).
On the other hand, private respondent also invokes said law as an
expression of public policy to protect buyers of real estate on installments
against onerous and oppressive conditions (Section 2 of Republic Act No.
6552).
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972
provides as follows:
"In case where less than two years of installments were paid, the seller shall
give the buyer a grace period of not less than sixty days from the date the
installment became due.  If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of 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 granted 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."
S a l e s P a r t X P a g e | 74
In compliance with this resolution, both parties submitted their respective
manifestations which confirm that the Manager's Check in question was
subsequently withdrawn and replaced by cash, but the cash was not
deposited with the court.
According to Article 1256 of the Civil Code of the Philippines, if the creditor to
whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due, and that consignation alone shall produce the same
effect in the five cases enumerated therein; Article 1257 provides that in
order that the consignation of the thing (or sum) due may release the
obligor, it must first be announced to the persons interested in the fulfillment
of the obligation; and Article 1258 provides that consignation shall be made
by depositing the thing (or sum) due at the disposal of the judicial authority
and that the interested parties shall also be notified thereof.
As the Court held in the case of Soco vs. Militante, promulgated on June 28,
1983, after examining the above-cited provisions of the law and the
jurisprudence on the matter:
"Tender of payment must be distinguished from consignation.  Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain.  Tender of
payment may be extrajudicial, while consignation is necessarily judicial, and
the priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation.  (8 Manresa 325)." (123 SCRA
160, 173)
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA 730),
the vendee was released from responsibility because he had deposited with
the court the balance of the purchase price.  Similarly, in the above-cited
case of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686),
the judgment debtor was released from responsibility by depositing with the
court the amount of the judgment obligation.
In the case at bar, although as above stated private respondent had
preserved his rights as a vendee in the contract of conditional sale of real
property by a timely valid tender of payment of the balance of his obligation
which was not accepted by petitioner, he remains liable for the payment of
 S a l e s P a r t X P a g e | 75

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 P1,000.00 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 P1,000.00 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 P1,000.00 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.