They were likewise ordered to pay Delta Motors P1,000.
00 for
Delta Motors Sales vs. Niu Kim Duan
G.R. No. 61043. September 2, 1992.]
Facts:
On 5 July 1975, Niu Kim Duan and Chan Fue Eng (defendants)
purchased from Delta Motor Sales
Corporation 3 units of ‘DAIKIN’ air-conditioner all
valued at P19,350.00. The deed of sale stipulates that the
defendants shall pay a down payment of P774.00 and the
balance of P18,576.00 shall be paid by them in 24
installments ; that the title to the properties purchased shall
remain with Delta Motors until the purchase price thereof is
fully paid; that 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
However, after paying the amount of P6,966.00, the
defendants failed to pay at least 2 monthly installments. s of 6
January 1977, the remaining unpaid obligation of the
defendants amounted to P12,920.08. Statements of accounts
were sent to the defendants and the Delta Motors’ collectors
personally went to the former to effect collections but they
failed to do so. Because of the unjustified refusal of the
defendants to pay their outstanding account and their wrongful
detention of the properties in question, Delta Motors tried to
recover the said properties extra-judicially but it failed to do so.
The matter was later referred by Delta Motors to its legal
counsel for legal action.
In its verified complaint dated 28 January 1977, Delta Motors
prayed for the issuance of a writ of replevin, which the Court
granted in its Order dated 28 February 1977, after Delta Motors
posted the requisite bond. On 11 April 1977, Delta Motors, by
virtue of the writ, succeeded in retrieving the properties in
question. The trial court promulgated its decision on 11
October 1977 ordering the defendants to pay Delta Motors the
amount of P6,188.29 with a 14% per annum interest which
was due on the 3 “Daikin” air-conditioners the defendants
purchased from Delta Motors under a Deed of Conditional
Sale, after the same was declared rescinded by the trial court.
Tajanlangit v. Southern Motors
GR L-10789
Facts:
The petitioner bought 2 tractors and a thresher for 25K from
the respondent on the condition to pay the said property in an
instalment basis.
However the petitioner failed to pay the purchase price, and
subsequently the respondent filed a case and levied the
execution on the said property sold, and subsequently bought
the subject property in a public auction for 10K.
The respondent obtain another writ of execution for the real
properties of the petitioner, herein the latter filed a petition
contending that the obligation was already satisfied because
the property sold was returned to the respondent, and that the
respondent was only limited to the proceeds of the sale.
and as attorney’s fees.
ISSUE:
WON the lower court erred in its decision to order the
defendants to pay the unpaid balance despite the fact that
Delta motors already retrieved the subject properties.
HELD:
The court held that remedies available to vendor in a
sale of personal property payable in installments 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).
Moreover, the 3 remedies are alternative and NOT cumulative.
If the creditor chooses one remedy, he cannot avail himself of
the other two.
Thus in the case at bar, Air-conditioning units repossessed,
bars action to exact payment for balance of the price Delta
Motors had taken possession of the 3 air-conditioners, through
a writ of replevin when defendants refused to extra-judicially
surrender the same. The case Delta Motors filed was to seek a
judicial declaration that it had validly rescinded the Deed of
Conditional Sale. Delta Motors thus chose the second remedy
of Article 1484 in seeking enforcement of its contract with
defendants. Having done so, it is barred from exacting
payment from defendants 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.
Issue: Whether or not the vendor of a movable on instalment is
limited to the proceeds of the sale.
Held:
No, in the sale of movables on instalment the vendor has 3
remedies 1) Exact fulfillment of the obligation 2) Cancellation of
the sale if the buyer failed to pay 2 or more instalment and 3)
To foreclose the chattel mortgage over the good being sold if
the buyer failed to pay 2 or more instalments, but this will bar
the seller from further recovery.
At the present case since the seller chooses the exact
fulfilment of the obligation the seller may still recover from the
other property of the buyer.
SPOUSES NONATO V. IAC & INVESTOR'S FINANCE CORP
140 SCRA 255 (1985)
FACTS: In 1976, Spouses Restituto Nonato and Ester Nonato
purchased a volkswagen from the People’s Car Inc on
installment basis.
1. To secure their complete payment, Nonato executed a
promissory note and a chattel mortgage in favor of People’s
Car Inc.
2. Subsequently, People’s Car Inc assigned its rights and
interest over the note and mortagge in favor of Investor’s
Finance Corp (IFC).
3. For failure of the spouses to pay two or more
installments, despite demands, the car was repossessed by
IFC.
4. Despite repossession, IFC still demanded from Nonato
that they pay the balance of the price of the car. IFC, then, filed
a complaint for the payment of the price of the car with
damages
5. Nonato, in their defense, argued that when the company
repossessed the car, IFC had, by that act, effectively cancelled
the sale of the vehicle. As such, it was barred from exacting the
recovery of the unpaid balance of the purchase price as
mandated by Art 1484.
6. The trial court rendered in favor of IFC and ordered the
spouses Nonato pay the balance of the purchase price of the
car with interest. CA affirmed the same.
ISSUE: WON a vendor or his assignee, who had cancelled the
sale of a motor vehicle for failure of the buyer to pay two or
more of the stipulated installments, may also demand payment
of the balance of the purchase price
HELD: No. The applicable law in the case at bar is Art 1484
which provides that:
Zayas, Jr. v. Luneta Motor Company, G.R. No. L-30583
October 23, 1982
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.
Facts: Eutropio Zayas, Jr, purchased on installment basis a
motor vehicle described as ONE (1) UNIT FORD THAMES
FREIGHTER Mr. Roque Escaño of the Escaño Enterprises in
Cagayan de Oro City, dealer 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, Zayas 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
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 provision means that should the vendee or the purchaser
of a personal property default in the payment of two or more of
the agreed installments, the vendor or the seller has the option
to avail any of these 3 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
an alternative, not cumulative, that the exercise of one should
bar the exercise of the others.
In the present case, it is not disputed that IFC had taken
possession of the car purchased by the Nonatos after the
spouses defaulted in their payments. The defense of IFC that it
the repossession of the vehicle was only for the purpose of
appraising its value and for storage and safekeeping pending
full payment of the spouses is untenable. The receipt issued by
IFC to the spouses when it took possession of the vehicle that
the vehicle could be redeemed within 15 days. This could only
mean that should the spouses fail to redeem the car within the
period provided, IFC would retain permanent possession of the
vehicle. IFC even notified the spouses Nonato that the value of
the car was not sufficient to cover the balance of the purchase
price and there was no attempt at all on the part of the
company to return the car.
The acts performed by IFC are consistent with the conclusion
that it had opted to cancel the sale of the vehicle. Therefore, it
is barred from exacting payment from the petitioners of the
balance of the price of the vehicle which it had already
repossessed (it cannot have its cake and eat it too)
Luneta Motor Company to extra-judicially foreclose the chattel
mortgage.
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
Issue: Whether or not Luneta Motors can collect the deficiency
of the Chattel Mortgage.
Held: 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. 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 Luneta Motor
Company, was merely a collecting-agent as far as the
RIDAD vs. FILIPINAS INVESTMENT and FINANCE
CORPORATION, SEBASTIAN& SAN AGUSTIN (GR# L-
39806; Jan. 27, 1983)
FACTS: On April 14, 1964, plaintiffs purchased from the
Supreme Sales arid Development Corporation 2 brand new
Ford Consul Sedans complete with accessories, for P26,887
payable in 24 monthly installments and executed 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 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, 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 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. On February
21, 1966, plaintiffs filed an action for annulment of contract
before the CFI, with Filipinas Investment and Finance
Corporation, Jose D. Sebastian and Sheriff Jose San Agustin,
as party-defendants. The lower court rendered judgment
declaring th chattel mortgage null and void. Defendants
appealed to the CA which affirmed the decision.
ISSUE: Is the chattel mortgage, so far as the franchise and the
subsequent sale thereof are concerned, valid?
HELD: The resolution of said issue is unquestionably
governed by the provisions of Article 1484 of the Civil Code.
Under the said provision, the vendor of personal property the
G.R. No. L-24772 May 27, 1968
Ruperto G. Cruz, et al., plaintiffs-appellees
purchase of the subject motor vehicle was concerned. The
principal and agent relationship is clear.
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.
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 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. 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.
vs Filipinas Investment and Finance Corporation,
defendant-appellant
Ponente: Reyes

Facts:
This is an appeal by Filipinas from the decision of the CFI of
Rizal. In the action of Cruz for the cancellation of the real
estate mortgage constituted on the land of Cruz in favor of
Filipinas, the parties submitted the case for decision on the
following facts:
Cruz purchased on instalments a diesel bus with a promissory
note to the Far East Motor Corporation. To secure the
promissory note, Cruz executed in favor of the Motor
Corporation a chattel mortgage. Since there was no down
payment made, Motor Corporation required Cruz to give
additional security by which was given in the form of second
mortgage on a parcel of land and building owned by Felicidad
Reyes.Later, Cruz defaulted on the payment of the promissory
note in spite of the demands. Because of default, defendant
foreclose the chattel mortgage. The proceeds of the sale of the
bus were not sufficient to cover the expenses of sale, principal
obligation, interest and attorney's fees. Leading to the
foreclosure of the land owned by Mrs. Reyes. Mrs. Reyes then
on March 20, 1964 wrote a letter to Filipinas asking for the
cancellation of the real estate mortgage on her land, but
defendant did not comply with such.
Issues: (1) Whether Filipinas may foreclose the real estate
mortgage.
Held:
Borbon II vs. Servicewide
G.R. No. 106418. July 11, 1996
VITUG, J.:
FACTS: The Borbons signed a promissory note where they
jointly and severally promised to pay Pangasinan Auto Mart,
Inc. the sum of P122,856.00, to be payable without need of
notice or demand, in installments of P10,238.00 monthly for 12
months. To secure the Promissory Note, the defendants
executed a Chattel Mortgage on 1 brand new 1984 Isuzu, KCD
20 Crew Cab. The rights of PAMI was later assigned to
Filinvest with notice to the Borbons. Filinvest assigned all its
rights over the Promissory Note and the chattel mortgage to
the plaintiff. Because the Borbons did not pay their monthly
installments, Filinvest demanded from the defendants the
payment of their installments due by telegram. The plaintiff
attempted to collect by sending a demand letter to the Borbons
which totaled P185,257.80. The Borbonss claim that what they
intended to buy was a jeepney type Isuzu K. C. Cab. The
vehicle that they bought was not delivered. Instead, through
misrepresentation and machination, the PAMI delivered an
Isuzu crew cab. Later the representative of PAMI told the
Borbons that their available stock is an Isuzu Cab but minus
the rear body, which the Borbons agreed to deliver with the
Luis Ridad and Lourdes Ridad, plaintiffs-appellees, v
Filipinas Investment and Finance Corporation, Jose D.
Sebastian and Jose San Agustin, in his capacity as Sheriff,
defendants-appellants
should the vendee or purchaser of a personal property default
in the payment of two or more of the agreed instalments, the
vendor or seller has the option to avail of any one of these
three remedies — either to exact fulfilment 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 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.
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.
WHEREFORE, the decision appealed from is modified, by
ordering plaintiff-appellee Felicidad Vda. de Reyes to
reimburse to defendant-appellant Filipinas Investment &
Finance Corporation the sum of P2,148.07, with legal interest
thereon from the finality of this decision until it is fully paid. In
all other respects, the judgment of the court below is affirmed,
with costs against the defendant-appellant.
understanding that the PAMI will refund the Borbons the
amount of P10,000.00 to have the rear body completed. PAMI
was not able to replace the vehicle until the vehicle delivered
was seized by order of this court. The assignee exercise all
the rights of the assignor. The Borbons 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.
ISSUE: Whether petitioners could not avoid liability under the
promissory note and the chattel mortgage
HELD: No. 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 any mortgaged back
to him, although, similar to an action for specific performance,
he may still levy on it.
January 27, 1983
De Castro, J.
 Plaintiffs purchased from Supreme Sales and
Development Corporation (Supreme) 2 brand new Ford
Consul Sedans, for P26,887 payable in 24 monthly
installments.
 To secure payment thereof, plaintiffs executed a
promissory note covering the purchase price and a deed
of chattel mortgage on the two vehicles purchased and
also on another car (Chevrolet) and plaintiff’s franchise or
certificate of public convenience granted by the defunct
Public Service Commission for the operation of a taxi
fleet.
 With the conformity of plaintiffs, the vendor Supreme
assigned its rights, title and interest to the promissory
note and chattel mortgage to the defendant Filipinas
Investment and Finance Corporation.
 Plaintiffs failed to pay their monthly installments. Filipinas
foreclosed the chattel mortgage extra-judicially.
 During the public auction, of which the plaintiffs were not
notified, the 2 Ford Consul cars were bought by
defendant Filipinas, who was as the highest bidder.
During another public auction, the rest of the properties
(including the taxi franchise) subject of the chattel
mortgage were sold, and bought by defendant Filipinas
also.
 Filipinas subsequently sold the taxi franchise to defendant
Jose D. Sebastian, who filed with the Public Service
Commission an application for approval of said sale.
 Plaintiffs then filed an action for annulment of contract
before the CFI, against Filipinas, Sebastian, and Sheriff
San Agustin.
 CFI ruling: The chattel mortgage was null and void in so
far as the taxi franchise and the used Chevrolet car were
concerned, and the sale at public auction of the taxicab
franchise was to be of no legal effect. The Certificate of
Sale issued by the Sheriff of Manila in favor of Filipinas
concerning the taxi franchise was cancelled and set
aside. The assignment made by Filipinas in favor of Jose
Sebastian was also declared void and of no legal effect.
 The CA certified the defendants’ appeal to the SC.
Issue: Is the chattel mortgage and its subsequent sale valid?
NO
Ratio:
1) Article 1484 of the Civil Code is applicable. Under this
article, the vendor of personal property the purchase price
of which is payable in installments, has the right, should
PCI LEASING AND FINANCE INC v GIRAFFE-X CREATIVE
IMAGING INC
Facts:
-On December 4, 1996, petitioner PCI LEASING and
respondent GIRAFFE entered into a Lease Agreement,
whereby the former leased out to the latter one (1) set of
Silicon High Impact Graphics and accessories worth
P3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10
worth P6,500,000.00.
- A year into the life of the Lease Agreement, GIRAFFE
defaulted in its monthly rental-payment obligations. And
following a three-month default, PCI LEASING addressed a
formal pay-or-surrender-equipment type of demand letter dated
February 24, 1998 to GIRAFFE.
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. The vendor can only choose one option.
2) If the vendor avails himself of the right to foreclose the
mortgage, the law prohibits him from further bringing an
action against the vendee for the purpose of recovering
whatever balance of the debt secured is not satisfied by
the foreclosure sale.
3) Purpose of the law is to prevent mortgagees from seizing
the mortgaged property, buying it at foreclosure sale for a
low price and the bringing suit against the mortgagor for a
deficiency judgment.
a. Without the law, the mortgagor-buyer would find
himself without the property and still owing
practically the full amount of his original debt.
4) In this case, defendant Filipinas chose to foreclose the
mortgage upon default of plaintiffs, and bought the
vehicles at the public auction as the highest bidder.
a. Filipinas 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.
5) The lower court rightly declared the nullity of the chattel
mortgage in so far as the taxi franchise and the Chevrolet
were concerned, under the authority of the ruling in the
case of Levy Hermanos, Inc. v Pacific Commercial Co., et
al.
6) The vendor’s right to foreclose is limited only on the thing
sold.
7) The vendor of personal property sold on installment 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. (Cruz v
Filipinos Investment & Finance Corporation)
a. Otherwise, if the vendee could still be compelled to
pay the balance of the purchase price, the vendee
will be made to bear the payment of the balance
despite the earlier foreclosure.
Judgment appealed from is affirmed.
- The demand went unheeded.
- PCI Leasing instituted a case against GIRAFFE. PCI prayed
for the issuance of a writ of replevin for the recovery of the
leased property
- 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 filed a Motion to
Dismiss,arguing that the seizure of the two (2) leased
equipment stripped PCI LEASING of its cause of action.
-GIRAFFE argues that, pursuant to Article 1484 of the Civil
Code on installment sales of personal property, PCI LEASING
is barred from further pursuing any claim arising from the lease
agreement and the companion contract documents, adding
that the agreement between the parties is in reality a lease of
movables with option to buy.
-GIRAFFE asserts in its Motion to Dismiss that the civil
complaint filed by PCI LEASING is proscribed by the
application to the case of Articles 1484 and 1485, supra, of the
Civil Code.
- PCI Leasing on the other hand maintains that its contract with
GIRAFFE is a straight lease without an option to buy.
- petitioner contends that the financial leasing arrangement it
concluded with the respondent represents a straight lease
covered by R.A. No. 5980, the Financing Company Act, as
last amended by R.A. No. 8556, otherwise known as Financing
Company Act of 1998, and is outside the application and
coverage of the Recto Law. To the petitioner, R.A. No. 5980
defines and authorizes its existence and business.
-the trial court granted GIRAFFE’s motion to dismiss
- motion for reconsideration was denied, hence this petition for
review.
Issue: Whether the agreement between PCI Leasing and
GIRAFFE is governed by Articles 1484 and 1485 of the Civil
Code?
Held: Petition denied. Trial Court’s decision affirmed
Ratio:
-The PCI LEASING- GIRAFFE lease agreement is in reality a
lease with an option to purchase the equipment. This has
LEGARDA VS. SALDAÑA
FACTS: Saldaña had entered into two written contracts with
Legarda, a subdivision owner, whereby Legarda agreed to sell
to him two of his lots for 1,500 per lot, payable over a span of
10 years on 120 monthly installments with 10% interest per
annum. Saldaña paid for eight consecutive years but did not
make any further payments due to Legarda’s failure to make
the necessary improvement on the said lot which was
promised by their representative, the said Mr. Cenon. Saldaña
already paid a total of Php3,582.06. The statement of account
shows that Saldaña paid Php1,682.28 of the principal and
Php1,889.78 for the interest. It did not distinguish which of the
two said lots was paid. Petitioner, then, rescinded the contract
based on the stipulation of the contract that payments made by
respondent shall be considered as rentals and any
improvements made shall be forfeited in favor of the petitioner.
The lower court ruled sustaining
petitioner’s cancellation of contract. So respondent appealed
and judgment was reversed in favor of the respondent ordering
JESTRA DEVELOPMENT AND MANAGEMENT
CORPORATION v. DANIEL
PONCE PACIFICO
513 SCRA 403 (2007)
been made manifest by the actions of the petitioner itself,
foremost of which is the declarations made in its demand letter
to the respondent. There could be no other explanation than
that if the respondent paid the balance, then it could keep the
equipment for its own; if not, then it should return them. This is
clearly an option to purchase given to the respondent. Being
so, Article 1485 of the Civil Code should apply.
- The present case reflects a situation where the financing
company can withhold and conceal - up to the last moment - its
intention to sell the property subject of the finance lease, in
order that the provisions of the Recto Law may be
circumvented. It may be, as petitioner pointed out, that the
basic “lease agreement” does not contain a “purchase option”
clause. The absence, however, does not necessarily argue
against the idea that what the parties are into is not a straight
lease, but a lease with option to purchase. This Court has, to
be sure, long been aware of the practice of vendors of personal
property of denominating a contract of sale on installment as
one of lease to prevent the ownership of the object of the sale
from passing to the vendee until and unless the price is fully
paid.
-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.
petitioners to deliver to plaintiff one of the two lots at the choice
of the defendant and execute the deed of conveyance. Hence
this petition.
ISSUE: Was the cancellation of the sale of contract valid?
RULING: No, even though it was stipulated that failure to
complete the payment would result to the cancellation of the
contract, it was still not valid. As clearly shown in the statement
of account, Saldaña was able to pay one of the two said lots.
Under Article 1234 of the New 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”. Hence,
under the authority of Article 1234 of the New Civil Code,
Saladaña is entitled to one of the two lots of his choice and the
interest paid shall be forfeited in favor of the petitioners
Cancellation of the contract, under the law, requires that the
seller should extend the buyer a grace period of at least 60
days from the due date of the installment, and at the end of the
grace period, the seller shall furnish the buyer with a notice of
cancellation or demand for rescission.
Daniel Ponce Pacifico (Pacifico) signed a Reservation
Application with Fil-Estate Marketing Association for the
purchase of a house and lot located at Paranaque, Metro
Manila and paid the reservation fee of 20,000.00. Under the
Reservation Application, upon fulfillment of the 30%
down payment by Pacifico, he will sign a contract to sell with
the owner and developer of the property which is the
JESTRA Development and Management Corporation (Jestra).
Pacifico run out of funds to pay for the property, and he
requested to Jestra to suspend payment. Jestra denied his
request. Pacifico filed a complaint before the Housing and
Land Use Regulatory Board (HLURB) against Jestra 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 datedMarch 6, 1997 and Jestra
instead sold the property to another buyer in October 1998.
ISSUE:
Whether or not the act of Jestra in canceling the contract to sell
agreement with Pacifico is valid
HELD:
McLaughlin v. CA
Petitioner Luisa F. McLaughlin and private respondent Ramon
Flores entered into a contract of Conditional Sale of Real
Property. Paragraph one of the deed of conditional sale fixed
the total purchase price of P140,000.00 payable as follows: a)
P26,550.00 as downpayment; and b) the balance of
P113,450.00 to be paid not later than May 31, 1977.
On June 19, 1979, Luisa filed a complaint in the Rizal CFI for
the rescission of the deed of conditional sale due to Flores’
failure to pay the balance already due. On December 27, 1979,
the parties submitted a Compromise Agreement in which the
parties agreed that the amount due 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.
On October 15, 1980, Luisa wrote to Flores 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.
Flores asserted that on November 3, 1980, he tendered
payment to Luisa but this was refused acceptance by Luisa.
However, this does not appear in the decision of the Court of
Appeals.
On November 7, 1980, Luisa filed a Motion for Writ of
Execution alleging that Flores failed to pay the installment due
on June 1980and that since June 1980, he had failed to pay
the monthly rental of P 1,000.00. Luisa prayed that the deed of
conditional sale of real property be declared rescinded with
forfeiture of all payments as liquidated damages and Flores be
evicted. The trial court granted the motion for writ of execution.
Flores 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 and issued the writ of execution on November 25, 1980.
R.A. 6552 was enacted to protect buyers of real estate on
installment against onerous and oppressive conditions. In
Fabrigas v. San Francisco del Monte,Inc., the court described
the cancellation of the contract under Section 4 of R.A. 6552 as
a two-step process. First, the seller should extend the buyer a
grace period of at least 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 30 days from the
buyer‘s receipt thereof.
Pacifico admits that the first installment on the 70% balance of
the purchase price was due on January 5, 1998. He issued
checks for it but was dishonored due to insufficiency of funds.
Pacifico was notified of the dishonor of the checks but he took
no action, hence, 60 days grace period lapsed. Pacifico made
no further payments thereafter. Instead, he requested for
suspension of payment.
Also, Pacifico admits that Jestra was justified in canceling
the contract to sell via the notarial Notice of Cancellation which
he received on May 13, 1998 which took effect on June 12,
1998. Thus, the cancellation of the contract to sell of Jestra is
valid.
In an order, 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. The CA nullified the
orders of the lower court, holding that 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 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, 198.0Thus 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.
ISSUE: WON the contract?
RULING:
Section 4 of Republic Act No. 6552 further supports the
decision of the appellate court. Section 4 provides that:
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 the cancellation
or the demand for rescission of the contract by a notarial act.
Here, assuming that under the terms of said agreement, the
December 31, 1980 installment was due and payable when
Luisa demanded (October 15, 1980) that the balance of
P69,059.71 be paid on or before October 31, 1980. Luisa,
then, could cancel the contract after thirty days from receipt by
Flores of the notice of cancellation. Considering Luisa’s motion
for execution filed on November 7, 1980 as a notice of
cancellation, Luisa could cancel the contract of conditional sale
after thirty days from receipt by Flores of said motion. Flores’
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.
Nonetheless, although Flores 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 his obligation because of his failure to deposit the
amount due with the court.

117 MACONDRAY v EUSTAQUIO
(Barring effect of Foreclosure Del Socorro)
Facts:- buyer Eustaquio bought a car from seller Macondray-
buyer issued a promissory note w/c stated the price was
payable in 12 monthly installments, and default in one
installment would make the whole obligation due- to guarantee
the payment, buyer executed a chattel mortgage on the car-
st
only 1 installment paid- seller called upon the sheriff to
possess the car, but the buyer refused; so seller filed for
replevin- the car was sold at public auction, but the proceeds of
the sale was insufficient to cover the debt (balance still
remained)- seller filed to recover the balance- complaint by
seller dismissed by the lower court
Issues:
basis of the last two options is Act No. 4122, amendatory of the
Civil Code- 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- the Act merely qualifies the remedy
3. Act 4122 provides: 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.- the words "any unpaid balance" refers 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

1. Seller contends that the lower court incorrectly applied Act.

4122 and dismissed the complaint, although the buyer waived
his right under the law by not appearing, having been declared
in default, and not interposing any special defense

2. Seller contends that Act. 4122 is unconstitutional because it

takes property without due process of law, denies the equal
protection of the laws, and impairs the obligations of contracts.

3. (issue related to sales) Seller 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.

Held:

1. Buyer did not waive the application by the court of Act No.
4122.- under the Rules of Court, 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 plaintiff is required 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

2. Act. 4122 is constitutional.- public purpose of Act No. 4122 is

to prevent abuses committed in connection with the foreclosure
of chattel mortgages when sales were payable in installments-
3 remedies are available to the vendor who has sold personal
property on the installment plan:(a) exact the fulfillment of the
obligation(b) if the vendee shall have failed to pay two or more
installments, the vendor may cancel the sale(c) 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