CASE TITLE : MAGNA FINANCIAL SERVICES GROUP, INC. VS.

ELIAS COLARINA

CITATION : G.R. NO. 158635 (DECEMBER 9, 2005)

TOPIC : RECTO LAW

FACTS OF THE CASE:

 Private respondent Elias Colarina bought on instalment from Petitioner Magna Financial Services
Group, Inc., one (1) unit Suzuki Multicab.

 To secure payment thereof, Colarina executed an integrated promissory note and deed of chattel
mortgage over the motor vehicle.

 Colarina failed to pay the complete monthly amortization and despite repeated demands from Magna,
the former failed to make the necessary payment.

 Magna then instituted a complaint for foreclosure of chattel mortgage with replevin before the MTCC
of Legaspi City. In its complaint, Magna prayed for both1.)the payment of the principal sum with
penalty charges plus liquidated damages, and 2.) forColarina to surrender possession of the
Multicab.

Ruling of the MTCC

 The MTCC granted the prayer for the issuance a writ replevin and upon service of a copy of the same
to respondent by the sheriff, the respondent voluntarily surrendered possession of the motor vehicle
to said sheriff.

 The MTCC then rendered its decision in favour of Magna, ordering Colarina to pay, among others,
the principal amount plus penalty charges.

 The MTCC also declared that should Colarina default in paying the money judgment, the subject
motor vehicle shall be sold at a public auction to satisfy said judgment.

Ruling of the RTC

 Colarina appealed to the RTC of Legaspi City. During the pendency of his appeal before the RTC,
Colarina died and was substituted in the case by his heirs.

 The RTC rendered its judgment affirming in toto the decision of the MTCC.

Ruling of the CA

 Colarina’s heirs filed a Petition for Review before the Court of Appeal, which reversed and set aside
the decision of both the MTCC and the RTC.

 Applying Article 1484 of the Civil Code of the Philippines, the CA ordered the foreclosure of the
chattel mortgage over the subject vehicle without any right on the part of Magna to seek the payment
of unpaid balance of the purchase price.

 According to the appellate court,the MTC and the RTC erred in ordering the defendant to pay the
unpaid balance of the purchase price of the subject vehicle irrespective of the fact that the complaint
filed by petitioner was for the foreclosure of its chattel mortgage.

 The judgment of the lower court in effect allowedManato retain the possession and ownership of the
subject vehicle and at the same time claim against the defendant for the unpaid balance of its
purchase price.

ISSUE(S):

1. Whether petitioner availed of avail itself of the first and third remedies under Article 1484; and,
2. Whether there was actual foreclosure of the subject motor vehicle.
HELD:

As to the First Issue

The Supreme Court says YES.It isunmistakable that petitioner preferred to avail itself of the first
and third remedies under Article 1484, at the same time suing for replevin. For this reason, the Court of
Appeals justifiably set aside the decision of the RTC. Perusing the Complaint, the petitioner, under its
prayer number 1, sought for the payment of the unpaid amortizations which is a remedy that is provided
under Article 1484 of the Civil Code, allowing an unpaid vendee to exact fulfillment of the obligation. At
the same time, petitioner prayed that Colarina be ordered to surrender possession of the vehicle so that
it may ultimately be sold at public auction, which remedy is contained under Article 1484. Such a scheme
is not only irregular but is a flagrant circumvention of the prohibition of the law. By praying for the
foreclosure of the chattel, Magna Financial Services Group, Inc. renounced whatever claim it may have
under the promissory note.

Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to foreclose
the chattel mortgage, “he shall have no further action against the purchaser to recover any unpaid
balance of the purchase price. Any agreement to the contrary shall be void.” In other words, 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.

In sum, since the petitioner has undeniably elected a remedy of foreclosure under Article 1484(3) of
the Civil Code, it is bound by its election and thus may not be allowed to change what it has opted for nor
to ask for more. On this point, the Court of Appeals correctly set aside the trial court’s decision and
instead rendered a judgment of foreclosure as prayed for by the petitioner.

As to the Second Issue

The Supreme Court says NO. In the case at bar, there is no dispute that the subject vehicle is
already in the possession of the petitioner, Magna Financial Services Group, Inc. However, actual
foreclosure has not been pursued, commenced or concluded by it.

Where the mortgagee elects a remedy of foreclosure, the law requires the actual foreclosure of the
mortgaged chattel. As held in the case Manila Motor Co. v. Fernandez, it is actual sale of the mortgaged
chattel in accordance with Sec. 14 of Act No. 1508 that would bar the creditor (who chooses to foreclose)
from recovering any unpaid balance. And it is deemed that there has been foreclosure of the mortgage
when all the proceedings of the foreclosure, including the sale of the property at public auction, have
been accomplished.
CASE TITLE : LEVY HERMANOS, INC., plaintiff-appellant vs. LAZARO BLAS
GERVACIO, defendant-appellee.

CITATION : G.R. No. L-46306 (October 27, 1939)

TOPIC : RECTO LAW

FACTS OF THE CASE:

 Plaintiff Levy Hermanos, Inc. sold a car to defendant Lazaro Blas Gervacio.

 Gervacio made a down payment for the car and then executed a promissory note for the balance in
favor of Levy Hermanos, Inc.

 In order to secure payment of the note for the balance of P2,400.00, the former (Gervacio) mortgaged
the car to the latter (Levy Hermanos).

 After Gervacio failed to pay the note upon its maturity, Levy Hermanos foreclosed the mortgage.

 The car was sold at a public auction where it was bought for P1,800.00 by Levy Hermanos for being
the highest bidder.

 Despite having already bought the car at the public auction, plaintiff instituted an action before the
CFI of Manila against defendant for the collection of the balance of the P1,600.00 and interest.

 The CFI, applying the provisions of Act No. 4122, inserted as Article 1454-A of Civil Code, rendered
judgment in favor of Gervacio.

 Levy Hermanos, Inc. appealed the judgment.

ISSUE:

Whether plaintiff is entitled to the collection of the balance of P1,600.00 and interest.

HELD:

The Supreme Court says YES.Judgment of the CFI reversed.

The contract, in the instant case, while a sale of personal property, is not, however, one on
installments, but on straight term, in which the balance, after payment of the initial sum, should be paid in
its totality at the time specified in the promissory note. The transaction is not is not, therefore, the one
contemplated in Act No. 4122 and accordingly the mortgagee is not bound by the prohibition therein
contained as to the right to the recovery of the unpaid balance.

Undoubtedly, the law is aimed at those sales where the price is payable in several installments, for,
generally, it is in these cases that partial payments consist in relatively small amounts, constituting thus a
great temptation for improvident purchasers to buy beyond their means. There is no such temptation
where the price is to be paid in cash, or, as in the instant case, partly in cash and partly in one term, for,
in the latter case, the partial payments are not so small as to place purchasers off their guard and delude
them to a miscalculation of their ability to pay.

Theoretically, perhaps, there is no difference between paying the price in two 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.
phi1.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.
CASE TITLE : UNIVERSAL MOTORS CORPORATION vs. DY HIAN TAT, ET AL.

CITATION : G.R. No. L-23788 (May 16, 1969)

TOPIC : RECTO LAW

FACTS OF THE CASE:

 Appellant DyHian Tat bought from appellee Universal Motors Corporation a Mercedes-Benz diesel
truck on an instalment basis.

 When appellant defaulted in the payment of the instalments, appellee filed an action for replevin
before the CFI of Manila in order to recover possession of said truck.

 Appellee further prayed that in event said truck could not be recovered, appellant should pay to the
former not only the unpaid balance for the sale of the truck but also the attorney’s fees and the costs
of suit.

 Appellant, on the hand, admits that appellee is entitled to the possession of the said truck.

 The CFI rendered its judgment adjudging that the appellee has the right of possession over the
Mercedes-Benz Diesel Truck.

 The lower court further ordered that appellant pay to appellee amounts representing attorney's fees
and costs of suit.

 Appellant appealed the decision of the CFI to the Supreme Court on the ground that the awarding of
attorney’s fees by the lower court erred to the appellee is contrary to the provisions of article 1484 of
the New Civil Code of the Philippines.

ISSUE(S):

1. Whether Article 1484 of the Civil Code is applicable to the case at bar; and,
2. Whether appellee is entitled to the award of attorney’s fees.

HELD:

1. As to the First Issue:

The Supreme Court say NO.

According to the Supreme Court, Article 1484 of the Civil Code does not apply to the case at bar
because the present case is an action for replevin and not a foreclosure of mortgage. Nowhere in the
stipulation of facts or even in the pleadings does it appear that appellee has foreclosed its mortgage.
Merely because a copy of the mortgage has been attached to the complaint does not make this action
one of foreclosure of a chattel mortgage. True, appellee succeeded in recovering the truck in question,
precisely by means of the present action of replevin, but surely, this case is far from being the action of
foreclosure of chattel mortgage.

The mere fact that appellee has secured possession of the truck in question does not necessarily
mean that it will foreclose its mortgage. Indeed, there is no showing at all that appellee is causing the sale
thereof at public auction or in even preparing to do so. It is quite possible that appellee wanted merely to
be sure that the truck is not lost or rendered valueless, preparatory to having it levied upon under a writ of
attachment.

2. As to the Second Issue:

The Supreme Court says YES.

Appellant raises for the first time in this appeal the issue that appellee did not present any
evidence to prove that it actually incurred expenses by way of attorney's fees. Apart from the fact that it is
too late in the day for appellant to bring up this point, it appears that what has been awarded to appellee
is in the nature of liquidated damages. (Art. 2226, Civil Code) As these is no claim that they are iniquitous
or unconscionable, (Art. 2227, Id.) the law does not require any proof thereof.

JUDGMENT OF THE CFI AFFIRMED, WITH COSTS AGAINST APPELLANT.

Citation : G.R. No. L-10789 (May 28, 1957)

Topic : Remedy of Specific Performance

Facts of the Case:

 Appellants Amador Tajanlangit and his wife Angeles bought from appellee Southern Motors, Inc. two
(2) tractors and a thresher (for the total purchase price of P24,755.75).

 As payment for the sale said farm machineries and farm implements, appellants executed a
promissory note in favor of appellee.

 Appellants, by way of the promissory note, undertook to pay the total purchase price in several
installments and that in the case of default, the total unpaid principal sum with interest shall become
due and demandable at once.

 Appellants failed to meet any installment and so appellee sued the former before the CFI, Branch
1, of Iloilo.

 The CFI Iloilo rendered its judgment finding appellants liable to the appelles for the total sum of
P24,755.75 together with 12% interest.

 Carrying out the order of execution, the sheriff levied on the same machineries and farm implements
which had been bought by the spouses were sold at a public auction appellees for the total sum of
P10,000.

 As the CFI’s 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 other real
properties owned by the theTajanlangits.

 To prevent the sale of their real properties, the Tajanlangits filed an action before the CFI, Branch 4,
in order to annul the writ of execution.

 The Tajanlangits theorized that they already settled their account with Southern Motors after the
return of the machineries and farm implements.

 The Tajanlangits further theorized that since Southern Motors Inc. had repossessed the machines
purchased on installment (and mortgaged) they were, therefore, relieved from further responsibility, in
view of the Recto Law, now article 1484 of the New Civil Code.

 Southern Motors, on the other hand, 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 CFI, Branch 4, dismissed the complaint filed by the Tajanlangits because the latter have not
pursued the proper remedy.

 According to said CFI, it cannot grant the relief prayed for by the Tajanlangits because courts of
similar jurisdiction cannot invalidate the judgments and orders of each other.

 The plaintiffs brought the matter to the Court of Appeals, but the appellate court referred the case to
the Supreme Court on the opinion that the appeal involved questions of jurisdiction and/or law.

Issue:

Whether the attachment made on the real properties of the appellant is proper.

Held:

The Supreme Court says YES. Judgment of the CFI, Branch 4 is affirmed.According to the
Supreme Court, there has been no foreclosure of the chattel mortgage nor a foreclosure sale. Therefore
the prohibition against further collection does not apply. 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.
Case Title : NESTORA RIGOR VDA. DE QUIAMBAO, ET AL. VS. COURT OF
APPEALS & MANILA MOTOR COMPANY, INC.

Citation : G.R. NO. L-17384 (OCTOBER 31, 1961)

Topic : NATURE OF REMEDY OF RESCISSION

Facts of the Case:

 On March 7, 1940, the late Gaudencio R. Quiambao, husband of petitioner Nestora Rigor vda. De
Quiambao and father of other petitioners, bought a car from respondent Manila Motor Company on
an instalment plan.

 Gaudencio defaulted in the payment of a number of instalments so respondent company sued the
former before the CFI of Manila.

 The CFI decided in favour of respondent company and Gaudencio was ordered to pay the money
judgment with interest plus attorney’s fees.

 The CFI issued a writ of execution addressed to the Provincial Sheriff of Tarlac who levied on levied
on and attached two parcels of land in order to satisfy the judgment debt (2 parcels of land probably
owned by Gaudencio R. Quiambao).

 When the sheriff, together with the counsel for Manila Motor, went to GaudencioQuiambao to apprise
him of the levy, the latter pleaded for the execution sale to be suspended and begged for time within
which to satisfy the judgment debt, proposing that in the meanwhile, he would surrender to the
company the subject car.

 Gaudencio’s proposition was accepted and the car was delivered to the company.

 This proposition was accepted and GaudencioQuiambao delivered the car to the company.

 However, Gaudencio was only able to pay a portion of the judgment debt and failed to make any
further payment leaving a greater portion of the judgment unpaid for. (Gaudencio was only able to
pay P500.00, leaving a balance still unsettled of P1,952.47, with interest thereon at 12% per
annum from March 6, 1940)

 In the meantime, the Pacific war broke out, and when the Japanese forces occupied the country
shortly thereafter, the invaders seized all the assets of the Manila Motor Company, Inc., as enemy
property.

 After the war, the Manila Motors filed with the Philippine War Damage Commission, a claim for its
mortgage lien on the car of GaudencioQuiambao and was awarded the sum of P780.47, P409.75 of
which amount had already been paid.

 The company the sent a letter to GaudencioQuiambao asking him to fill a blank form relative to the
lost car.

 GaudencioQuiambao having since died, his widow, Nestora Rigor Vda. deQuiambao, returned the
form with the statement that the questioned car was surrendered to the company for storage.

 A demand was made on Nestora to settle the Gaudencio’s unpaid accounts but the latter refused,
prompting the respondent Manila Motor to urge the Provincial Sheriff to carry out the writ of execution
issued before the Japanese occupation. (Although the records of that case had been lost during
the war, and have not been reconstituted, a copy of said writ of execution kept on file by the
provincial sheriff was saved.)

 Accordingly, the latter advertised for sale at public auction the properties levied upon.

 Notified of the sheriff's action, the heirs of the deceased Quiambao filed this suit to annul and set
aside the writ of execution and to recover damages.

 Judgment was rendered by the Court of First Instance of Manila in favor of the heirs of
GaudencioQuiambao, but on appeal to the Court of Appeals, the decision was reversed and another
one was entered dismissing the complaint. The heirs of Gaudencio elevated the case to the
Supreme Court.
 Petitioners maintained that the "taking of the automobile by respondent company from
GaudencioQuiambao ... amounted to a waiver of said company's right to execute its judgment in the
case before the CFI and clearly constituted a cancellation or rescission of the sale," which, under the
first paragraph of Article 1454-A of the old Civil Code, then applicable, bars any further claim for
unpaid installments.

Issue:

Whether the contract of sale between Manila Motor Company and GaudencioQuiambao was
rescinded on the ground of the delivery of the subject car to the former.

Held:

The Supreme Court says NO. Petition denied, CA decision affirmed.

 In the present case it was the buyer (deceased GaudencioQuiambao) who offered, indeed pleaded,
to surrender his car only in order that he might given more time within which to satisfy the judgment
debt, and suspend the impending execution sale of the properties levied upon.

 The very receipt issued then by the company, and accepted without objection by the deceased
(GaudencioQuiambao), indicated that the car was received "pending settlement of the judgment in
Civil Case No. 58043."

 Other circumstances that militate against petitioners' theory of rescission or annulment of the contract
of sale and waiver of the judgment of debt and, conversely, strengthen the proposition that the
delivery of the car to respondent company was merely to postpone the satisfaction of the judgment
amount, are that the deceased still paid the further sum of P500.00 on account of his indebtedness
about two months after the car was surrendered, and that despite respondent company's acceptance
of the car, the company made repeated demands against the petitioners to settle the deceased's
unpaid accounts.

 Since respondent company did not receive the car for the purpose of appropriating the same, but
merely as security for the ultimate satisfaction of its judgment credit, the situation under consideration
could not have amounted to a foreclosure of the chattel mortgage as petitioners imply.
CASE TITLE : SPOUSES RESTITUTO NONATO and ESTER NONATO, petitioners,
vs. THE HONORABLE INTERMEDIATE APPELLATE COURT and
INVESTOR'S FINANCE CORPORATION, respondents.

CITATION : G.R. No. L-67181 (November 22, 1985)

TOPIC : NATURE OF REMEDY OF RESCISSION

FACTS OF THE CASE:

 Petitioner-spouses RestitutoNonato and Ester Nonato purchased one (1) unit of Volkswagen
Sakbayan from the People's Car, Inc., on installment basis.

 To secure complete payment, the petitioners executed a promissory note and a chattel mortgage in
favor of People's Car, Inc.

 People's Car, Inc, assigned its rights and interests over the note and mortgage in favor of private
respondent Investor's Finance Corporation (FNCB) Finance).

 For failure of petitioner-spouses to pay two or more installments, despite demands, the car was
repossessed by respondent Investor's Finance.

 Despite repossession of the car, respondent Investor's Finance still demanded payment from
petitioner-spouses of the balance of the price of the car.

 Respondent Investor’s Finance filed a complaint before the Court of First Instance of Negros
Occidental against petitioner-spouses in order to compel the latter to pay the balance of the price of
the car.

 In their answer, the spouses Nonato alleged that when the respondent repossessed the subject
vehicle, it had, by that act, effectively cancelled the sale of the vehicle.

 Therefore, according to petitioner-spouses, respondent company is barred from exacting recovery of

 The trial court, however, decided in favor of respondent company and ordered petitioner-spouses to
pay the unpaid balance of the purchase price of the subject car plus interest.

 On appeal, the respondent appellate court affirmed the j judgment.

ISSUE:

Whether respondent Investor’s Finance Corporation may demand from petitioner-spouses

HELD:

The Supreme Court says NO. Petition granted. Appellate court’s decision set aside.

 The Supreme Court, quoting Article 1484 of the Civil Code, held that "Should the vendee or
purchaser of a personal property default in the payment of two or more of the agreed installments, the
vendor or seller has the 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.

 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.

 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.

 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.

 Respondent 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.
CASE TITLE : 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.

CITATION : G.R. No. L-39806 January 27, 1983

TOPIC : REMEDY OF FORECLOSURE

FACTS OF THE CASE:

 Plaintiff-spouses purchased from the Supreme Sales and Development Corporation two (2)
brand new Ford Consul Sedans, 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.

 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.

 Plaintiff-spouses failed to pay their monthly instalments as per promissory note so the
defendant corporation foreclosed the chattel mortgage extra-judicially, and at the public
auction sale of the two cars, of which the plaintiffs were not notified, the defendant
corporation was the highest bidder and purchaser.

 Another auction sale was held 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

 At the second 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.

 Defendant corporation subsequently sold and conveyed the franchise to herein defendant
Jose D. Sebastian, who then filed with the Public Service Commission an application for
approval of said sale in his favor.

 Plaintiff-spouses filed an action for annulment of contract before the Court of First Instance
of Rizal, Branch I, against defendants.

 The CFI rendered judgment in favour of the plaintiff-spouses.

 The CFI declares the chattel mortgageto be null and void in so far as the taxicab franchise
and the used Chevrolet car of plaintiff-spouses are concerned,

 The CFI likewise declared that the sale at public auction conducted by the City Sheriff of
Manila concerning said taxicab franchise, to be of no legal effect.

 The certificate of sale issued by the City Sheriff of Manila in favor of Filipinas Investment and
Finance Corporation concerning plaintiffs' taxicab franchise 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.

 Defendants appealed the CFI judgment to the Court of Appeals which,certified the appeal to
the Supreme Court.

ISSUE:
Whether the Court of First Instance is correct in declaring the chattel mortgage in so far as the
taxicab franchise and the used Chevrolet car of plaintiff-spouses to be null and void.

HELD:

The Supreme Court says YES. CFI judgment is affirmed.

 The resolution of said issue is unquestionably governed by the provisions of Article 1484 of
the Civil Code which states:

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

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

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

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.

 Under the above-quoted article of the Civil Code, the vendor of personal property the
purchase price of which is payable in installments, has the right, should the vendee default
in the payment of two or more of the agreed installments, to exact fulfillment by the
purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the
purchased personal property, if one was constituted.

 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 himself
without the property and still owing practically the full amount of his original indebtedness.

 In the instant case, defendant corporation elected to foreclose its mortgage upon default by
the plaintiffs in the payment of the agreed instalments.

 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.
CASE TITLE : 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.

CITATION : G.R. No. L-30583 October 23, 1982

TOPIC : REMEDY OF FORECLOSURE

FACTS OF THE CASE:

 Petitioner EutropioZayas, Jr. purchased on instalment basis a jeepney from

 Upon delivery of the motor vehicle to petitioner he paid the initial payment and executed a
promissory note for the remaining balance of the purchase price, payable in twenty-six (26)
instalments, in favour of Luneta Motor Company.

 Simultaneous with the execution of the promissory note, petitioner executed a chattel
mortgage on the subject motor vehicle in favour of Luneta Motor Company.

 Petitioner was unable to unable to pay in full the monthly instalments (he paid only a total
amount of P3,148.00) so respondent Luneta Motor Company proceed to extra-judicially
foreclose the chattel mortgage.

 The subject motor vehicle was sold for P5,000.00 at a public auction to respondent Luneta
Motor Company.

 Since the payments made by petitioner plus the amount (P5,000.00) realized from the
foreclosure of the chattel mortgage could not cover the total amount of the promissory note
executed by petitioner in favour of respondent Luneta Motor Company, the latter filed a case
against petitioner before the City Court of Manila to recover the balance plus interest.

 Petitioner in his answer to the complaint, contended that his obligation to private respondent
per the promissory note was extinguished by the sale at public auction of the subject motor
vehicle.

 Luneta Motor Company in reply 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
instalment.

 Petitioner moved for the dismissal of the case for the lack of interest on the part of
respondent. The motion was granted by the lower court.

 According to the lower court, petitioner was correct in contending that he is no longer liable
for the deficiency judgment inasmuch as the chattel mortgage has been foreclosed, with the
respondent as the highest bidder thereofLet this case be dismissed without pronouncement
as to costs.

 Luneta Motor Company appealed the case to the Court of First Instance of Manila which
ordered the remand of the case to the City Court of Manila.

 According to the CFI 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.

 Aggrieved, EutropioZayas, Jr., filed a petition for review by certiorari before the Supreme
Court to secure a reversal of the respondent court's orders which remanded the present for
further proceedings instead of affirming the city court's order of dismissal,
ISSUE:

Whether Petitioner is correct in his contention that his obligation to private respondent
per the promissory note was extinguished by the sale at public auction of the subject motor
vehicle.

HELD:

The Supreme Court says YES. Petition granted. Order of the CFI reversed.

 According to the Supreme Court, 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:

 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. (Cruz v. Filipinas
Investment & Finance Corporation, 23 SCRA 791)

 The findings and conclusions of the Supreme Court are borne out by the records available
to the respondent court. There was no necessity for the remand of records to the city court
for the presentation of evidence on the issue raised in the case.
CASE TITLE : NORTHERN MOTORS, INC., plaintiff-appellant, vs. CASIANO
SAPINOSO and "JOHN DOE", defendants-appellees.

CITATION : G.R. No. L-28074 (May 29, 1970)

TOPIC : “BARRING EFFECTS” OF FORECLOSURE

FACTS OF THE CASE:

 Appellee CasianoSapinoso purchased from Appellant Northern Motors, Inc. an Opel Kadett car.

 Sapionoso made a down payment and executing a promissory note in favour Northern Motors.

 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 "whichever 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 was only able to pay some of the instalments, so Northern Motors filed a
complaint against the former (Sapinoso).

 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

 Subsequent to the commencement of the action, but before the filing of his answer, defendant
Sapinosomade two more payments in the amount of P1,250.00 on the promissory note

 In the meantime, upon the plaintiff's filing of a bond, a writ of replevin was issued by the court.

 By virtue of a seizure warrant, the car was seized from Sapinoso and handed to appellant company.

 Sapinoso, on the other hand, 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.

 Sapinoso, in his answer to the complaint, allegedthat upon demand he immediately surrendered the
possession of the car to the appellants' representative.

 Sapinoso further alleged that he failed to pay the instalments because the car was defective and
appellant company failed to fix it despite Sapinoso’s repeated demands. And the appellant company,
instead of fixing the car, filed the present complaint.

 Sapinoso prayed for the dismissal of the complaint and the return of the car to him.

 After trial, the lower rendered judgment holding that appellant 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

 The lower court further held that since appellant company availed of the right to foreclose the chattel
mortgage, the appellant has no more right to collect of the attorney's fees stipulated in the promissory
note, and should return to Sapinoso the sum of P1,250.00 which he paid to appellant company after
the filing of the present case.

 Northern Motors appealed the lower court’s decision to the Supreme Court, contending 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
 Northern Motors further contend that what the said Article 1484 prohibits is "further action" to collect
payment of the deficiency after the creditor has foreclosed the mortgage; and that in paying plaintiff-
appellant the sum of P1,250.00 before defendant-appellee Sapinoso filed his answer, and in not filing
a counterclaim for the recovery thereof, the said defendant-appellee in effect renounced whatever
right he might have had to recover the said amount.

ISSUE:

Whether or not Northern Company is obliged to return the amount of P1,250.00 paid to it
by Sapinoso after the filing of the complaint.

HELD:

The Supreme Court says NO. Appealed judgment of lower is modified.

 According to the Supreme Court, the lower court 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.

 According further to the Supreme Court, 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.

 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, 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.

 THEREFORE, THE PAYMENT OF THE SUM OF P1,250.00 BY SAPINOSO WAS A

 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, there is no reason why a mortgage creditor should
be barred from accepting, before a foreclosure sale, payments voluntarily tendered by the
debtor-mortgagor who admits a subsisting indebtedness.
CASE TITLE : RUPERTO G. CRUZ, ET AL. plaintiffs-appellees vs. FILIPINAS
INVESTMENT and FINANCE CORPORATION, defendant-appellant

CITATION : G.R. No. L-24772 (May 27, 1968)

TOPIC : “BARRING” EFFECTS OF FORECLOSURE

FACTS OF THE CASE:

 Plaintiff Ruperto G. Cruz purchased on an installmentbasis from the Far East Motor Corporation, one
(1) unit of Isuzu Diesel Bus, payable in 30 monthly installments.

 As evidence of said indebtedness, plaintiff Cruz executed and delivered to the Far East Motor
Corporation a negotiable promissory note.

 To secure the payment of the promissory note. Cruz executed in favour of Far East Motor
Corporation, a chattel mortgage over the aforesaid motor vehicle.

 Since no down payment was made by Cruz, Far East Motor Corporation, required Cruz to give,
additional security for his obligation besides the chattel mortgage,

 The additional security was given by plaintiff FelicidadVda. de Reyes in the form of deed of real
estate mortgage (second mortgage) over a building and lot owned by her.

 At the time of the second mortgage, the land was already mortgaged to the Development Bank of the
Philippines to secure a loan obtained by Felicidad Reyes from said bank.

 Far East Motor Corporation, on the other hand, 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
defendant Filipinas Investment & Finance Corporation (FIFC), with due notice of such assignment to
the plaintiffs.

 Plaintiff Cruz defaulted in the payment of the promisory note and despite FIFC’s repeated demands,
Cruz made no payment on any of the installments stipulated in the promissory note.

 That by reason of Cruz's default, FIFCtook steps to foreclose the chattel mortgage on the bus.

 The bus, however had been damaged in an accident while in the possession of plaintiff Cruz;

 Defendant was the highest bidder in the foreclosure sale but since the proceeds of the sale of the bus
were not sufficient to discharge fully the indebtedness of plaintiff Cruz to the defendant;

 Before foreclosing its real estate mortgage on Mrs. Reyes' land, defendant paid the mortgage
indebtedness of Mrs. Reyes to the Development Bank of the Philippines.

 Before the land could be sold, Mrs.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.

 To prevent the sale of the land, Mrs. Reyes, et al. filed an action for the cancellation of the real estate
mortgage constituted on the land before the Court of First Instance of Rizal.

 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.

 The CFI rendered judgment in favour the plaintiffs and ordered the cancellation of the real estate
mortgage over the land.

 The CFI declared that the extrajudicial foreclosure of the chattel mortgage on the bus barred further
action against the additional security put up by plaintiff Reyes.

 Defendants appealed the CFI decision to the Supreme Court.

ISSUE:
 Whether defendants have the right to extrajudicially foreclose the real estate mortgage on the
land of plaintiff Reyes.

HELD:

The Supreme Court says NO.However, appellant is entitled to reimbursement by appellee Vda.
de Reyes of the amount which the former paid to the Development Bank of the Philippines for the release
of the first mortgage on the land of said appellee. Judgment of the CFI is modified.

 The Supreme Court held that the present case involves the sale of personal property on installments,
the pertinent legal provision in this case is Article 1484 of the Civil Code of the Philippines.

 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:
Undoubtedly the principal object of the above amendment 6 was to remedy the abuses
committed in connection with the foreclosure of chattel mortgages. This amendment prevents
mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and
then bringing suit against the mortgagor for a deficiency judgment. The almost invariable result of
this procedure was that the mortgagor found himself minus the property and still owing practically
the full amount of his original indebtedness. Under this amendment the vendor of personal
property, the purchase price of which is payable in installments, has the right to cancel the sale or
foreclose the mortgage if one has been given on the property. Whichever right the vendor elects
he need not return to the purchaser the amount of the installments already paid, "if there be in
agreement to that effect". Furthermore, if the vendor avails himself of the right to foreclose the
mortgage the amendment prohibits him from bringing an action against the purchaser for the
unpaid balance.

 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.

 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.
CASE TITLE : DANIEL L. BORBON II AND FRANCISCO L. BORBON, petitioners,
vs. SERVICEWIDE SPECIALISTS, INC. & HON. COURT OF
APPEALS, respondents.

CITATION : [G.R. No. 106418. July 11, 1996]

TOPIC : BARRING EFFECTS OF FORECLOSURE

FACTS OF THE CASE:

 Petitioners Daniel L. Borbon II and Francisco L. Borbon bought from Pangasinan Auto Mart,
Inc. one (1) Brand new 1984 Isuzu KCD 20 Crew Cab on instalment basis.

 The Borbons then executed a promissory note in favour of Pangasinan Auto Mart and to
secure payment of said promissory note executed a Deed of Chattel Mortgage over the said
motor vehicle.

 The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest Credit Corporation
and then afterwards to respondent Servicewide Specialists, Inc.

 Petitioners did not pay any monthly instalments despite demand from private respondent
because the former claim that the vehicle that they intended to buy from Pangasinan Auto
Mart was not delivered to them.

 Private respondents filed an action for replevin before the RTC of Manila to confirm
possession of the subject motor vehicle in its favour and to for petitioners to pay liquidated
damages and attorney’s fees.

 In their answer petitioners claimed 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
petitioners further claimed that neither party incurs delay if the other does not comply with
his obligation. (citing Art. 1169, N.C.C.)

 The RTC rendered its decision confirming possession of the motor vehicle in favour of
respondent. The trial court also order petitioners to pay respondent liquidated damages.

 On appeal, the trial court’s decision was sustained by the appellate court, which 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.

 Petitioners elevate the case to the Supreme Court in order to modify the decision of the
appellate court as to the award of liquidated damages and attorney’s fees in favour of
private respondent. Petitioners invoke the provisions of Article 1484 of the Civil Code.

ISSUE:

Whether petitioner is not liable to pay liquidated damages and attorney’s fees to private
respondent.

HELD:

The Supreme Court says NO.Appealed judgment is modified.

 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 xx 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 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 xx 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.