Hermanos v Gervacio

October 27, 1939 | Moran, J. | Appeal| Breach of contracts -> Meaning of Installment Sale

Plaintiff-appellee: Levy Hermanos, Inc.

Defendant-appellant: Lazaro Blas Gervacio

SUMMARY: Defendant bought car from plaintiff and made the first payment. Promisory note was executed for the
fulfillment of the payment of the balance; secured payment by mortgaging the subject property. Defendant defaulted in
payment, so plaintiff foreclosed mortgage; sued defendant for the balance of the car. Court ruled for the plaintiff.

DOCTRINE: Art. 1454-A of the Civil Code, which bars plaintiff from recovering unpaid balance for the property after
foreclosure, only applies to sales on installment or those sales where the price is payable in several installments

FACTS:
1. On Macrh 10, 1937, Hermanos sold a Packard car to
Gervacio. Gervacio made the initial payment and
executed a promisory note due on June 15, 1937 for the
balance of P2,400. To secure payment, defendant
executed a mortgage on the car; he failed to pay on the
maturity date of the PN. Plaintiff foreclosed the
mortgage and the car was sold at a public auction, with
Hermanos as the highest bidder for P1,800.
2. Hermanos now seeks to collect payment of the
balance of P1,600 + interest.
3. Trial Court ruled for the defendant, applying Art.
1454-A1 (from Act No. 4122) of the Civil Code, which
bars recovery of the unpaid balance once the vendor has
chosen to foreclose the mortgage.
installments and that there has been a failure to pay two
or more installments." (Macondray and Co. vs. De
Santos)
2. The contract between Hermanos and Gervacio is a
sale of personal property but not a sale on installments.
It is a straight term sale, in which the balance, after
payment of the initial sum, should be paid in its totality
at the time specified in the promissory note. Act 4122 is
only applicable to a sale on installments - those sales
where the price is payable in several installments.
3. Rationale: it is in the cases of installment sales that
partial payments consist in relatively small amounts,
constituting thus a great temptation for improvident
purchasers to buy beyond their means. Such temptation
does not arise from straight term sales, because partial
paymnets are not so small.

ISSUE/S:

WON contract between the parties is one of an

installment sale (or WON trial court correct in applying
Art. 1454-A) – NO

HELD: Gervacio is sentenced to pay plaintiff-

appellant the sum of P1,600 with interest at the
rate of 12 per cent per annum

RATIO:
1. “In order for the provisions of article 1454-A of the
Civil Code to apply, it must appear that there was a
contract for the sale of personal property payable in

1
In a contract for the sale of personal property payable in
installments shall confer upon the vendor the right to cancel
the sale or foreclose the mortgage if one has been given on
the property, without reimbursement to the purchaser of the
installments already paid, if there be an agreement to this
effect.

However, if the vendor has chosen to foreclose the mortgage

he shall have no further action against the purchaser for the
recovery of any unpaid balance owing by the same and any
agreement to the contrary shall be null and void.