Yap Kim Chuan v. Tiaoqui GR No.
1006, Indeed lessor is liable for warranty against
September 18, 1915
FACTS: The plaintiff in this case is a lessee of
the defendant. During the periodof lease,
his merchandise was damaged due to leaks
in the roof of the storeroom in the leased
building. For this reason, he asked the
defendant-lessor to indemnify him for
damage caused by the leaks in the roof.
The defendant-lessor, on the other hand,
argued that the building being occupied by
the plaintiff was new and was built based
on standard required by the government.
The leak was due to a torrential rain the
heaviest from the month of January of that
year. He further argued that the leak was
not solely caused by the heavy rain but also
due to improper location of said
merchandise inside the building.
ISSUE: Can the lessor be held liable for
indemnity for the damage caused to
thegoods of lessee? Did he fail to perform
his obligations as lessor?
HELD: No. Article 1562 of the Civil Code
reads: "If, at the time of the lease of
theestate, the condition of the same was
not mentioned, the law presumes that the
lessee received it in good condition, unless
there be proof to the contrary."
Moreover, there is no evidence in the case
that he failed in the performance of the
obligations he assumed in executing the
lease, nor does there appear to have been
stipulated therein the liability now imputed
to him. The fact is that neither the lessor no
the lessees knew that the roof was defective
and was going to leak when it rained, for
they only became aware of the leaks during
the rainstorm; and therefore only on the
hypothesis that the lessor had known of such
defect and had concealed it from the
plaintiffs could he be held responsible for
the consequences thereof on account of
the leakages that occurred.
any hidden defects. But this liability for
warranty of the thing leased does not
amount to an obligation to indemnify the
tenant for damages, which is only to be
allowed when there is proof that the lessor
acted with fraud and in bad faith by
concealing to the lessee.
JERRY T. MOLES v. INTERMEDIATE APPELLATE
COURT AND MARIANO M. DIOLOSA
G.R. No. 73913, January 31,
1989
FACTS:
Jerry Moles(petitioner) bought from Mariano
Diolosa owner of Diolosa Publishing House
a linotype printing machine(secondhand
machine). Moles promised Diolosa that will
pay the full amount after the loan from DBP
worth P50,000.00 will be released. Private
respondent on return issued a certification
wherein he warrated that the machine was
in A-1 condition, together with other express
warranties. After the release of the of the
money from DBP, Petitioner required the
Respondent to accomplish some of the
requirements. On which the dependant
complied the requirements on the same
day.
On November 29, 1977, petitioner wrote
private respondent that the machine was
not functioning properly. The petitioner
found out that the said machine was not in
good condition as experts advised and it
was worth lesser than the purchase price.
After several telephone calls regarding the
defects in the machine, private respondent
sent two technicians to make necessary
repairs but they failed to put the machine in
running condition and since then the
petitioner wan unable to use the machine
anymore.
ISSUE/S:
1. Whether there is an implied warranty of
its quality or fitness.
2. Whether the hidden defects in the
machine is sufficient to warrant a rescission
of the contract between the parties.
HELD:
1. It is generally held that in the sale of a
designated and specific article sold as
secondhand, there is no implied warranty as
to its quality or fitness for the purpose
intended, at least where it is subject to
inspection at the time of the sale. On the
other hand, there is also authority to the
effect that in a sale of secondhand articles
there may be, under some circumstances,
an implied warranty of fitness for the
ordinary purpose of the article sold or for the
particular purpose of the buyer.
Said general rule, however, is not without
exceptions. Article 1562 of our Civil Code,
which was taken from the Uniform Sales Act,
provides:
"Art. 1562. In a sale of goods, there is an
implied warranty or condition as to the
quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by
implication, makes known to the seller the
particular purpose for which the goods are
acquired, and it appears that the buyer
relies on the seller's skill or judgment
(whether he be the grower or manufacturer
or not), there is an implied warranty that the
goods shall be reasonably fit for such
purpose;"
2. We have to consider the rule
on redhibitory defects contemplated in
Article 1561 of the Civil Code.
A redhibitory defect must be an
imperfection or defect of such nature as to
engender a certain degree of importance.
An imperfection or defect of little
consequence does not come within the
category of being redhibitory.
As already narrated, an expert witness for
the petitioner categorically established that
the machine required major repairs before it
could be used. This, plus the fact that
petitioner never made appropriate use of
the machine from the time of purchase until
an action was filed, attest to the major
defects in said machine, by reason of which
the rescission of the contract of sale is
sought. The factual finding, therefore, of the
trial court that the machine is not
reasonably fit for the particular purpose for
which it was intended must be upheld, there
being ample evidence to sustain the same.
At a belated stage of this appeal, private
respondent came up for the first time with
the contention that the action for rescission
is barred by prescription. While it is true that
Article 1571 of the Civil Code provides for a
prescriptive period of six months for
a redhibitory action, a cursory reading of
the ten preceding articles to which it refers
will reveal that said rule may be applied
only in case of implied warranties. The
present case involves one with an express
warranty. Consequently, the general rule
on rescission of contract, which is four years
shall apply. Considering that the original
case for rescission was filed only one year
after the delivery of the subject machine,
the same is well within the prescriptive
period. This is aside from the doctrinal rule
that the defense of prescription is waived
and cannot be considered on appeal if not
raised in the trial court, and this case does
not have the features for an exception to
said rule.
BRICKTOWN DEVELOPMENT CORP. and
MARIANO Z. VERALDE vs. AMOR TIERRA
DEVELOPMENT CORPORATION and the HON.
COURT OF APPEALS
G.R. No. 112182December 12, 1994
CONTRACT AS A SOURCE OF OBLIGATION
FACTS:
Bricktown Development
Corporation, represented by its President
and co-petitioner Mariano Z. Velarde,
executed two Contracts to Sell in favor of
Amor Tierra Development Corporation,
represented in these acts by its Vice-
President, Moises G. Petilla, covering a total
of 96 residential lots at the Multinational
Village Subdivision, La Huerta, Paraaque,
Metro Manila.
The total price of P21,639,875.00 was
stipulated to be paid by private respondent
in such amounts and maturity dates, as
follows: P2,200,000.00 on 31 March 1981;
P3,209,968.75 on 30 June 1981; P4,729,906.25
on 31 December 1981; and the balance of
P11,500,000.00 to be paid by means of an
assumption by private respondent of
petitioner corporation's mortgage liability to
the Philippine Savings Bank or, alternately, to
be made payable in cash. On date, March
31, 1981, the parties executed a The contract between Bricktown
Supplemental Agreement, providing that
private respondent would additionally pay
to petitioner corporation the amounts of
P55,364.68, or 21% interest on the balance of
down payment for the period from 31
March to 30 June 1981, and of P390,369.37
representing interest paid by petitioner
corporation to the Philippine Savings Bank in
updating the bank loan for the period from
01 February to 31 March 1981.
Private respondent was only able to
pay petitioner corporation the sum of
P1,334,443.21. However, the parties
continued to negotiate for a possible
modification of their agreement, but
nothing conclusive happened. And on
October 12, 1981, petitioners counsel sent
private respondent a Notice of
Cancellation of Contract because of the
latters failure to pay the agreed amount.
Several months later, private
respondents counsel, demanded the
refund of private respondent's various
payments to petitioner corporation,
allegedly "amounting to P2,455,497.71," with
interest within fifteen days from receipt of
said letter, or, in lieu of a cash payment, to
assign to private respondent an equivalent
number of unencumbered lots at the same
price fixed in the contracts. When the
demand was not heeded, Amor Tierra filed
an action with the court a quo which
rendered a decion in its favor. The decision
of the lower court was affirmed in toto by
the Court of Appeals. Hence, this petition.
ISSUE:
1. Whether or not the contract was
properly rescinded.
2. Whether or not Bricktown properly
forfeited the payments of Amor
Tierra.
RULING:
and Amor Tierra was validly rescinded
because of the failure of the latter to pay
the agreed amounts stipulated in the
contract on the proper date even after the
sixty-days grace period. Furthermore, the
records showed that private respondent
corporation paid less than the amount
agreed upon. The Supreme Court also
added that such cancellation must be
respected. It may also be noteworthy to
add that in a contract to sell, the non-
payment of the purchase price can prevent
the obligation to convey title from acquiring
any obligatory force.
On the second issue, the Supreme
Court ruled that since the private
respondent did not actually possessed the
property under the contract, the petitioner is
then ordered to return to private respondent
the amount remitted. However, to adjudge
any interest payment by petitioners on the
amount to be thus refunded, private
respondent should not be allowed to totally
free itself from its own breach.
EDCA PUBLISHING v. SANTOS
FACTS:
The movable property in this case consists of
books, which were bought from EDCA by an
impostor who sold it to SANTOS. EDCA
Publishing sold to a person identifying
himself as Professor Jose Cruz who placed
an order by telephone with the former for
406 books, payable on delivery. EDCA
prepared the corresponding invoice and
delivered the books as ordered, for which
Cruz issued a personal check. On October
7, 1981, Cruz then sold the 120 of the books
to Leonor Santos who asked for verification,
and was then showed the invoice for the
books.
Meanwhile, EDCA having become
suspicious over a second order placed by
Cruz even before clearing of his first check,
made inquiries with the De la Salle College
where he had claimed to be a dean and
was informed that there was no such person
in its employ. Further verification revealed
that Cruz had no more account or deposit
with the Philippine Amanah Bank, against
which he had drawn the payment check.
EDCA then went to the police, which set a
trap and arrested Cruz. Investigation
disclosed his real name as Tomas de la Pea
and his sale of 120 of the books he had
ordered from EDCA to the private
respondents.
ISSUE:
Whether or not EDCA PUBLISHINGAND
DISTRIBUTING CORP was unlawfully deprived
of the property?
HELD:
NO. Santos was a good faith buyer after
taking steps to verify the identity of the
seller. When she was showed the invoice,
she reasonably believed that he was a
legitimate seller. With regard to unlawful
deprivation, EDCA was not unlawfully
deprived of the property by mere failure of
consideration. There was already a
perfected contract of sale. Proof was even
substantiated when EDCA gave the invoice
as proof of payment upon delivery of the
books. This did not amount to unlawful
taking, because by the delivery of EDCA to
Cruz, ownership of the books already
transferred to him.
It would certainly be unfair now to make the
SANTOSES bear the prejudice sustained by
EDCA as a result of its own negligence. We
cannot see the justice in transferring EDCA's
loss to the SANTOSES who had acted in
good faith, and with proper care, when
they bought the books from Cruz.
PILAR T. OCAMPO, v. COURT OF APPEALS
and MAGDALENA S. VILLARUZ
G.R. No. 97442 June
30, 1994
TOPIC: Consequences of Failure to Comply
with Prestation
NCC Article 1191. The power to
rescind obligations is implied in
reciprocal ones, in case one of
theobligors should not comply with
what is incumbent upon him.
The injured party may choose between
the fulfillment and the rescission of the
obligation, with the payment of damages
in either case. He may also seek rescission,
even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice
to the rights of third persons who have
acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage
Law. (1124)
NCC Article 1592. In the sale of immovable
property, even though it may have been
stipulated that uponfailure to pay the price
at the time agreed upon the rescission of
the contract shall of right take place, the
vendee may pay, even after the expiration
of the period, as long as no demand for
rescission of the contract has been made
upon him either judicially or by a notarial
act. After the demand, the court may not
grant him a new term. (1504a)
FACTS: Two (2) documents, an "Agreement
to Sell Real Property" and a "Contract to
Sell," covering thesame parcel of land were
executed by a seller in favor of two (2)
different buyers. Both buyers now assert
against each other a better title to the
property.
Tolosa and Ocampo (represented
by Borres) entered into an
"Agreement to Sell Real Property"
3whereby Tolosa "sells, cedes and
transfers" the land to Ocampo in
consideration of P25,000.00,
P12,500.00 of which was paid upon
signing of the deed and the
balance to be due within six (6)
months thereafter. Paragraph 4 of
the contract provides that
"immediately upon complete
payment of the purchase price . . .
by the VENDEE, the VENDOR . . .
agrees to execute and deliver unto
the VENDEE whatever pertinent
document or documents necessary
to implement this sale and to
transfer title to the VENDEE."
Subject property is
mortgaged the land to
the Philippine Veterans
Bank and had the
encumbrance
annotated on his
certificate of title
Before the six-month period to
complete the payment of the
purchase price expired, Ocampo
paid but only the total of P16,700.00.
4Nevertheless Tolosa accepted her
subsequent late payments
amounting to P3,900.00.
Upon learning of the mortgage lien,
Ocampo caused her adverse claim
to be annotated onTolosas
certificate of title
Later on, Tolosa sought the
cancellation of Ocampos adverse
claim and presented her with two
options, namely, a refund of
payments made, or a share from
the net proceeds if sold to a third
party.
Subsequently, Tolosa and
Magdalena S. Villaruz executed a
"Contract to Sell" 9whereby Tolosa
"sells, cedes, transfers, and
conveys" to Villaruz the same land
in consideration of P94,300.00. The
amount of P15,000.00 was to be
paid upon execution and the
balance upon cancellation of all
liens and encumbrances from the
certificate of title. The contract
stipulated the immediate
conveyance of the physical
possession of the land to Villaruz,
although no deed of definite sale
would be delivered to her unless
the price was fully paid.
Tolosa wrote Ocampo offering to
reimburse her what she paid
provided she would sign a
document canceling her adverse
claim. Failing to convince Ocampo,
 Tolosa filed a petition in the Court of
First Instance of Iloilo to cancel the
adverse claim of Ocampo. The
petition was however denied but
Tolosa was able to get a favourable
decision in another branch of the
court.
The contract of sale between
Tolosa and Villaruz was registered
and a new title in the name of
Villaruz was eventually issued.
AggrivedOcampo filed a third party
complaint against Villaruz
RTC decided in favour of Ocampo
declaring the agreement between
Talosa and Villaruz as null and void
and ordered Tolosa to execute the
corresponding Deed of Sale in
favour of Ocampo.
CA reversed RTC s decision
upholding the agreement between
Tolosa and Villaruz, hence, this
appeal. The appellate court
upheld the sale in favor of Villaruz
on the theory that the 21 April 1975
agreement of Tolosa and Ocampo
was merely a contract to sell. It
claimed that in the absence of a
deed of absolute sale in favor of
Ocampo, in relation to par. 4 of the
contract, Tolosa retained
ownership over the land and validly
conveyed the same to
Villaruz.chanroblesvirtualawlibraryc
hanrobles
ISSUE: WON Tolosa has the right to rescind
the contract entered between him and
Ocampo.
RULING: NO. CA decision reversed and set
aside and RTC ruling reinstated
The agreement between Tolosa and
Ocampo dated 21 April 1975 although
titled "Agreement to Sell Real Property" was
a perfected contract of absolute sale.
Paragraph 4 pertains to the undertaking of
the seller to execute and deliver to the
buyer any document deemed necessary
by law to implement the sale and transfer
title since the parties were unsure of what
documents were pertinent. If the intent was
for the seller to retain ownership and
possession of the land through non-delivery
of certain documents unless the price be
fully paid, par. 4 alone should be inutile; it
should have been complemented with a
proviso that the sale would not be
implemented nor the title considered
transferred unless another document
specifically for said purpose be first
executed and delivered to the buyer. In this
regard, no right to retain ownership and
possession of the land pending full payment
of the price can be inferred from the fact
that no delivery was made to Ocampo. The
failure of the buyer to pay the price in full
within a fixed period does not, by itself, bar
the transfer of the ownership or possession,
19much less dissolve the contract of sale.
Under Art. 1592 of the Civil Code, the failure
of Ocampo to complete her payment of
the purchase price within the stipulated
period merely accorded Tolosa the option
to rescind the contract of sale upon judicial
or notarial demand.obles virtual law library
However, the letter of 2 August 1977
claimed to have been sent by Tolosa to
Ocampo rescinding the contract of sale
was defective because it was not notarized
and, more importantly, it was not proven to
have been received by Ocampo.
hanrobles Likewise, Civil Case No. 12163
could not be considered a judicial demand
under Art. 1592 of the Civil Code because it
did not pray for the rescission of the
contract. Although the complaint sought
the cancellation of Ocampos adverse
claim on Tolosas OCT and for the refund of
the payments made, these could not be
equivalent to a rescission. Even assuming
arguendo that Civil Case No. 12163 was a
valid judicial demand, rescission is not
granted as a matter ofcourse. Before Civil
Case No. 12163 was filed on 7 October
1977, Ocampo not only paid Tolosa a total
of P20,600.00 but also discharged Tolosas
mortgage debt in the amount of P4,453.41.
Had not Tolosa ordered the Philippine
Veterans Bank to return the mortgage debt
payment by Ocampo, the purchase price
would have been deemed fully paid.
Tolosa, on the other hand, is now precluded
from raising the issue of late payments. His
unqualified acceptance of payments after
the six-month period expired constitutes
waiver of the period and, hence, of the
ground to rescind under Art. 1592
In any case, however, the breach on the
part of Ocampo was only slight if not
outweighed by the bad faith of Tolosa in
reneging in his own prestations, hence,
judicial rescission of the contract cannot be
justified.
Angeles v. Calasanz.
While the contract dated 3 June 1977 in
favor of Villaruz is also a contract of sale,
that of Ocampo should prevail pursuant to
Art. 1544 of the Civil code on double sales.
While Villaruz may have registered his
contract or came into possession ahead of
Ocampo, Villaruz was never in good faith
since Ocampo already had her adverse
claim annotated on Tolosas title before the
sale between Tolosa and Villaruz.
SOUTHERN MOTORS, INC. vs. MOSCOSO
2 SCRA 168G.R. No. L-14475, May 30, 1961
FACTS:
Plaintiff Southern Motors, Inc. sold to
defendant Angel Moscoso one Chevrolet
truck on installment basis, for P6,445.00.
Upon making a down payment, the
defendant executed a promissory note for
the sum of P4,915.00, representing the
unpaid balance of the purchase price to
secure the payment of which, achattel
mortgage was constituted on the truck in
favor of the plaintiff. Of said account, the
defendant had paid a total of P550.00, of
which P110.00 was applied to the interest
and P400.00 to the principal, thus leaving an
unpaid balance of P4,475.00. The
defendant failed to pay 3 installments on
the balance of the purchase price. Plaintiff
filed a complaint against the defendant, to
recover the unpaid balance of the
promissory note. Upon plaintiff's petition, a
writ of attachment was issued by the lower
court on the properties of the defendant.
Pursuant thereto, the said Chevrolet truck,
and a house and lot belonging to
defendant, were attached by the Sheriff
and said truck was brought to the plaintiff's
compound for safe keeping. After
attachment and before the trial of the case
on the merits, acting upon the plaintiff's
motion for the immediate sale of the
mortgaged truck, the Provincial Sheriff of
Iloilo sold the truck at public auction in
which plaintiff itself was the only bidder for
P1,OOO.OO. The trial court condemned the
defendant to pay the plaintiff the amount of
P4,475.00 with interest at the rate of 12% per
annum from August 16, 1957,until fully paid,
plus 10% thereof as attorneys fees and
costs. Hence, this appeal by the defendant.
ISSUE:
Whether or not the attachment caused to
be levied on the truck and its immediate
sale at public auction, was tantamount to
the foreclosure of the chattel mortgage on
said truck.
HELD:
No. Article 1484 of the Civil Code provides
that in a contract of sale of personal
property the price of which is payable in
installments, the vendor may exercise any of
the following remedies: (I) 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; and (3) Foreclose the chattel
mortgage on the thing sold, if one has been
constituted, should the vendee's failure to
pay cover two or more installments. In this
case, he shall have no further action against
the purchaser to recover any unpaid
balance of the price. Any agreement to the
contrary shall be void. The plaintiff had
chosen the first remedy. The complaint is an
ordinary civil action for recovery of the
remaining unpaid balance due on the
promissory note. The plaintiff had not
adopted the procedure or methods
outlined by Sec. 14 of the Chattel Mortgage
Law but those prescribed for ordinary civil
actions, under the Rules of Court. Had the
plaintiff elected the foreclosure, it would not
have instituted this case in court; it would
not have caused the chattel to be
attached under Rule 59, and had it sold at
public auction, in the manner prescribed by
Rule 39. That the plaintiff did not intend to
foreclose the mortgage truck, is further
evinced by the fact that it had also
attached the house and lot of the appellant
at San Jose, Antique.
We perceive nothing unlawful or irregular in
plaintiff's act of attaching the mortgaged
truck itself. Since the plaintiff has chosen to
exact the fulfillment of the appellant's
obligation, it may enforce execution of the
judgment that may be favorably rendered
hereon, on all personal and real properties
of the latter not exempt from execution
sufficient to satisfy such judgment. It should
be noted that a house and lot at San Jose,
Antique were also attached. No one can
successfully contest that the attachment
was merely an incident to an ordinary civil
action. The mortgage creditor may recover
judgment on the mortgage debt and cause
an execution on the mortgaged property
and may cause an attachment to be issued
and levied on such property, upon
beginning his civil action.
Nonato v. IAC.
GR no. L-67181, November 22, 1985
FACTS:
In 1976, Spouses RestitutoNonato and Ester
Nonato purchased a volkswagen from the
Peoples Car Inc on installment basis.
1. To secure their complete payment,
Nonato executed a promissory note and a
chattel mortgage in favor of Peoples Car
Inc.
2. Subsequently, Peoples Car Inc
assigned its rights and interest over the note
and mortagge in favor of Investors 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:
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
remedieseither 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)
Ridad v. Filipinas Investment and Finance
Corp
Facts: The spouses Ridad purchased from
the Supreme Sales Development
Corporation two (2) brand new Ford Consul
Sedans complete with accessories. 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 their franchise or certificate
of public convenience granted by the
defunct Public Service Commission for the
operation of a taxi fleet with Filipinas
Investment.
Due to the failure of the plaintiffs to pay their
monthly installments as per promissory note,
Filipinas Investment foreclosed on the
chattel mortgage on the Ford Consul
Sedans. The foreclosure sale had a
deficiency. Consequently, the corporation
foreclosed the mortgage constituted on the
(Chevrolet) and their franchise or certificate
of public convenience.
Issue: Whether Filipinas Investment is
precluded from foreclosing the second
mortgage to recover the deficiency on the
first mortgage
Held: No. The vendor of personal property
sold on the installment basis is precluded,
after foreclosing the chattel mortgage on
the thing sold from having a recourse
against the additional security put up by a
third party to guarantee the purchasers
performance of his obligation on the theory
that to sustain the same would overlook the
fact that if the guarantor should be
compelled to pay the balance of the
purchase price, said guarantor will in turn be
entitled to recover what he has paid from
the debtor-vendee, and ultimately it will be
the latter who will be made to bear the
payment of the of the balance of the price,
despite the earlier foreclosure of the chattel
mortgage given by him, thereby indirectly
subverting the protection given the latter.
If the vendor under such circumstance is
prohibited from having a recourse against
the additional security for reasons therein
stated, there is no ground why such vendor
should not likewise be precluded from
further extrajudicially foreclosing the
additional security put up by the vendees
themselves, as in the instant case, it being
tantamount to a further action 5 that would
violate Article 1484 of the Civil Code, for
then is actually no between an additional
security put up by the vendee himself and
such security put up by a third party insofar
as how the burden would ultimately fall on
the vendee himself is concerned.
Borbon II vs. Servicewide
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
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.

Pascual vs Universal Motors Corporation:
Facts: Petitioners executed a real estate
mortgage to secure the payment of the
indebtedness of PDP Transit, Inc. for the
purchase of 5 units of Mercedez Benz trucks,
with a total purchase price or principal
obligation of Php 152, 506.50. Sometime in
April 1961, PDP Transit, Inc., petitioners
principal, had paid to respondent company
the sum of Php 92,964.91, leaving a balance
of Php 68,641.69, plus interest. The
aforementioned obligation guaranteed by
the petitioners under the Real Estate
Mortgage is further secured by separate
deeds of chattel mortgages on the
Mercedez Benz units.
In 1965, respondent filed a complaint
against PDP Transit, Inc. with a petition for a
writ of replevin, to collect the balance due
under the Chattel Mortgages and to
repossess all the units sold to PDP Transit,
Inc., including the 5 units guaranteed under
the subject Real Estate Mortgage.
Respondent admitted during the hearing
that in its suit (C.C. No. 60201) against the
PDP Transit, Inc. it was able to repossess all
the units sold to the latter, including the 5
units guaranteed by the subject real estate
mortgage, and to foreclose all the chattel
mortgages constituted thereon, resulting in
the sale of the trucks at public auction.
With the foregoing background, the spouses
Lorenzo Pascual and Leonila Torres, the real
estate mortgagors, filed for the cancellation
of the mortgage they constituted on two (2)
parcels of land in favor of respondent to
guarantee the obligation of PDP Transit, Inc.
to the extent of P50,000. The court rendered
judgment for the petitioners, ordered the
cancellation of the mortgage, and directed
the respondent to pay attorney's fees to the
petitioners. Respondent interposed the
present appeal.
Issue: W/n Art. 1484 of the Civil Code
applies in the case at bar.
Held: Yes. In rendering judgment for the
plaintiffs the lower court said in part: "...
there does not seem to be any doubt that
Art. 1484 of the New Civil Code may be
applied in relation to a chattel mortgage
constituted upon personal property on the
installment basis (as in the present case)
precluding the mortgagee to maintain any
further action against the debtor for the
purpose of recovering whatever balance of
the debt secured, and even adding that
any agreement to the contrary shall be null
and void." What article 1484 withholds from
the vendor is the right to recover any
deficiency from the purchaser after the
foreclosure of the chattel mortgage and not
a recourse to the additional security put up
by a third party to guarantee the
purchaser's performance of his obligation.
Magna Financial vs. Colarina
Facts:
Respondent bought a Multicab from
petitioner. To secure the obligation,
respondent executed a promissory note
and a chattel mortgage of the vehicle in
favor of the petitioner. Respondent then
defaulted in payment. Petitioner filed a
complaint for foreclosure of chattel
mortgage with replevin. A writ of replevin
was issued and the vehicle was turned over
to Magna financial. The trial court and RTC
decided in favor ofpetitioner and ordered
respondent to pay the unpaid balance and
foreclose the chattel mortgage. The Court
of Appeals reversed the decision.
Issue:
Whether MFS can avail of the two
remedies, payment of unpaid balance and
foreclosure of chattel mortgage?
Held:
No. Petitioner, having elected the
foreclosure of chattel mortgage, is not
entitled to be paid the balance even
though it did not actually foreclose the
chattel mortgage. 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 shallbe 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. The
petitioners prayer contains two remedies,
payment of unpaid balance and
foreclosure of chattel mortgage. 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.
Filipinas Investment vs Vitug Jr., and
Supreme Sales and Development
Doctrine
- Under Art 1484 of the Civil Code, the
vendor may only exercise in the
alternative the following remedies:
a.) exact fulfillment of the obligation;
b.) cancel the sale in case the failure
to pay covers two or more
installments and c.) foreclose the
chattel mortgage in case one has
been executed over the personalty
involved in the case.
- However, the provision can admit of
some exceptions as in the present
case, where it has been expressly
stipulated in the assignment that
recourse may be had against the
seller should the buyer fail to pay for
the balance of the obligation.
Facts
Respondent Vitug bought a four-
door Consul sedan for Php 14,605. He
executed a promissory note providing for
monthly installment payment and at the
same time constituted a chattel mortgage
over the vehicle. On the same day he
assigned his negotiated the promissory note
in favor of herein petitioner Filipinas
Investment, assigning thereto all his rights,
including a right of recourse against co-
defendant Supreme Sales.
Vitug predictably failed to pay for
the car, and petitioner applied for a writ of
replevin, but this was negated when Vitug
voluntarily surrendered the vehicle. The car
was sold in public auction but the proceeds
left a balance of Php 8, 349.35, which
petitioner now wishes to collect from co-
defendant Supreme Sales.
Issue
WON petitioner can collect on the
balance from Supreme Sales despite
the provision of the Recto Law (Art
1484)?
Held
YES.The transaction between appellant and
appellee was purely an ordinary discounting
transaction whereby the promissory note
executed by defendant Vitug was
negotiated by appellee in favor of
appellant for a valuable consideration at a
certain discount, accompanied by an
assignment also of the chattel mortgage
executed by said defendant to secure the
payment of his promissory note and with the
express stipulation that should there be any
deficiency, recourse could be had against
appellee. Stated otherwise, the remedy
presently being sought is not against the
buyer of the car or the defendant Vitug but
against the seller, independent of whether or
not such seller may have a right of recovery
against the buyer, which, in this case, he
does not have under the Recto Law.
OLYMPIA HOUSING, INC., (PETITIONER) VS.
PANASIATIC TRAVEL CORPORATION AND
MA.NELIDA GALVEZ-YCASIANO,
RESPONDENTS.
FACTS: The object in litigation is a condominium
unit sold at the price of P2,340,000.00 payable
on installments at the rate of P33,657.40 per
month.
On August 8, 1984, plaintiff Olympia Housing,
Inc. and defendant Ma.Nelida Galvez-Ycasiano
entered into a Contract to Sell, whereby the
former agreed to sell to the latter condominium
unit no. D-12, comprising an area of 160.50
square meters, more or less, situated on the
ground floor of Olympia Condominium located at
Makati, Metro Manila, covered by Condominium
Certificate of Title No. 6711, for the agreed price
of P2,340,000.00 payable in installments of
P33,657.40 per month.
Monthly amortization to commence on Sept.
17,1984.
Interest of 2% is included in regular monthly
amortization, past due amortization shall bear
interest of 2% per month plus penalty charge of
2% per month.
Pursuant to the Contract to Sell, defendant
Ma.Nelida Galvez-Ycasiano made a
reservation/deposit in the amount of
P100,000.00 on July 17, 1984 and 50% down
payment in the amount of P1,070,000.00 on July
19, 1984.
Defendants made several payments in cash and
thru credit memos issued by plaintiff
representing plane tickets bought by plaintiff
from defendant Panasiatic Travel Corp., which is
owned by defendant Ma. Nelida Galvez-
Ycasiano, who credited/offset the amount of the
said plane tickets to defendants account due to
plaintiff.
Plaintiff alleged that far from complying with the
terms and conditions of said Contract to Sell,
defendants failed to pay the corresponding
monthly installments which as of June 2, 1988
amounted to P1,924,345.52. Demand to pay the
same was sent to defendant Ma. Nelida Galvez-
Ycasiano, but the latter failed to settle her
obligation.
For failure of defendant to pay her obligation
plaintiff allegedly rescinded the contract by a
Notarial Act of Rescission.
At present, the subject condominium unit is
being occupied by defendant Panasiatic Travel
Corp., hence the suit for Recovery of
Possession (AccionPubliciana) with prayer for
attorneys fees, exemplary damages and
reasonable rentals for the unit from July 28,1988
at the rate of P32,100.00 per month until the
condominium unit is finally vacated.
Defendant Ma.Nelida Galvez-Ycasiano, while
admitting the existence of the contract to sell,
interposed the defense that she has made
substantial payments of the purchase price of
the subject condominium unit amounting to
P1,964,452.82 in accordance with the provisions
of the contract to sell; that she decided to stop
payment of the purchase price in the meantime
because of substantial differences between her
and the plaintiff in the computation of the
balance of the purchase price.
The Regional Trial Court dismissed the
complaint, having been prematurely filed without
complying with RA6552.
Respondents tendered the amount of
P4,304,026.53 to petitioner viaMetrobank
Cashiers Check. Petitioner refused to accept
the payment, constraining respondents to
consign at the disposal of the court. In an order,
the check was allowed to be substituted by
another cashiers check payable to the Clerk of
Court of the Makati Regional Trial Court.
Complying with yet another court order,
respondents deposited the amount of
P4,304,026.53 with the Land Bank of the
Philippines and subsequently submitted to the
court the corresponding bank book as well as
the banks verification.
Both parties appealed the judgment of the trial
court. In its now questioned decision of 11 June
1999, the appellate court sustained the trial
court.
ISSUES:
1) effect of the filing of the complaint and
the notarial act of rescission attached
thereto vis--vis the requirements of r.a.
6552
2) rescission of the subject contract to sell
on the ground that petitioner failed to
pay the cash surrender value prior to the
filing of the complaint
3) allowing respondent ycasiano to pay on
her already-defaulted obligations and,
upon such payment, ordering petitioner
to issue the certificate of title to her.
RULING:
The petition must be denied.
The action for reconveyance filed by petitioner
was predicated on an assumption that its
contract to sell executed in favor of respondent
buyer had been validly cancelled or rescinded.
The records would show that, indeed, no such
cancellation took place at any time prior to the
institution of the action for reconveyance.
As so aptly observed by the courts below, the
foregoing communication to the buyer merely
demanded payment within thirty (30) days from
receipt thereof with the threat that if the demand
were not heeded, the contract would forthwith be
cancelled or rescinded. Nor did the appellate
court erroneously ignore the notarial rescission
attached to the complaint for reconveyance.
Apparently, the so-called notarial rescission
was not sent to respondents prior to the
institution of the case for reconveyance but
merely served on respondents by way of an
attachment to the complaint. In any case, a
notarial rescission, standing alone, could not
have invalidly effected, in this case, the
cancellation of the contract.
As the trial court elaborated in this case:
It should be a notice of cancellation or demand
for rescission of the contract by notarial act.
Further, the law requires also full payment of the
cash surrender value to the buyer but there is no
evidence adduced by the plaintiff that they
delivered to the defendant the cash surrender
value. Admittedly, no such full payment of the
cash surrender value to the defendant was
made. A mere promise to return is not what the
law contemplates.
The governing law is Republic Act No. 6552,
otherwise known as the RealtyInstalment Buyer
Protection Act,a special law governing
transactions that involve, subject to certain
exceptions, the sale on instalment basis of real
property.The law has been enacted mainly to
protect buyers of real estate
on instalment payments against onerous and
oppressive conditions.
The enactment recognizes the right of the seller
to cancel the contract but any such cancellation
must be done in conformity with the
requirements therein prescribed.[12]In addition to
the notarial act of rescission, the seller is
required to refund to the buyer the cash
surrender value of the payments on the
property.[13] The actual cancellation of the
contract can only be deemed to take place upon
the expiry of a 30-day period following the
receipt by the buyer of the notice of cancellation
or demand for rescission by a notarial
act and the full payment of the cash surrender
value.
The Court agrees with petitioner that it is not
precluded from going to the court to demand
judicial rescission in lieu of a notarial act of
rescission. This much must be recognized.
Thus, in Layug vs. Intermediate Appellate
Court[14] the Court has ruled that a demand for
rescission by notarial act would appear to be
merely circuitous, consequently superfluous,
with the filing by the seller of an action for
annulment of contract and for recovery of
damages. Unfortunately for petitioner, it would
be incorrect to apply Layug to the instant
case. Layug is basically an action for annulment
of contract, a kindred concept of rescission,
whereas the instant case before the Court is one
for recovery of possession on the thesis of a
prior rescission of the contract covering the
property.[15] Not only is an action for
reconveyance conceptually different from an
action for rescission but that, also, the effects
that flow from an affirmative judgment in either
case would be materially dissimilar in various
respects. The judicial resolution of a contract
gives rise to mutual restitution which is not
necessarily the situation that can arise in an
action for reconveyance. Additionally, in an
action for rescission (also often termed as
resolution), unlike in an action for reconveyance
predicated on an extrajudicial rescission
(rescission by notarial act), the Court, instead of
decreeing rescission, may authorize for a just
cause the fixing of a period.[16]