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, a chattel 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. 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.
Pascual vs. Universal Motors Corp. (G.R. No. L-27862 November 1974) FACTS: Plaintiff-appellee spouses Pascual executed the real estate mortgage subject matter of this complaint to secure the payment of the indebtedness of PDP Transit, Inc. (PDP Trans.) for the purchase of 5 units of Mercedes Benz trucks, with a total purchase price or principal obligation of P152,506.50 which was to bear interest at 1% per month starting that day, but the plaintiffs' guarantee is not to exceed P50,000.00 which is the value of the mortgage. The PDP Trans., as the spouses Pasqual's principal, paid to defendant-appellant Universal Motors Corporation (Universal Motors) the sum of P92,964.91 on April 5, 1961 for two of the five Mercedes Benz trucks and on May 22, 1961 for the remaining three, thus leaving a balance of P68,641.69 including interest due on February 8, 1965. On March 19, 1965, Universal Motors filed this complaint with the CFI of Manila against the PDP Trans. to collect the balance due under the Chattel Mortgages and to repossess all the units sold to PDP Trans. as the spouse Pascuals principal, including the 5 units guaranteed under the subject Real (Estate) Mortgage. During the hearinbg, Universal Motors admitted that 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. As the real estate mortgagors, the spouses Pascual filed an action with the CFI of Quezon City for the cancellation of the mortgage they constituted on 2 parcels of land in favor of the Universal Motors to guarantee the obligation of PDP Trans. to the amount of P50,000. The said CFI rendered judgment in favor of the spouses Pascual and ordered the cancellation of the mortgage.
ISSUE: Was Article 1484 of the New Civil Code applicable in the case at bar?
COURT RULING: The Supreme Court affirmed the lower courts decision. Appellant Universal Motors argues that Article 1484 is not applicable to the case at bar because there is no evidence on record that the purchase by PDP Trans. of the 5 trucks was payable in installments and that the PDP Trans. had failed to pay two or more installments. Universal Motors also contends that what Article 1484 prohibits is for the vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the chattel mortgage on the thing sold, but not a recourse against the security put up by a third party. The Supreme Court concluded to the contrary, saying that the first issue was whether or not the sale was one on installments. The lower court found that it was, and that there was failure to pay two or more installments, a finding which is not subject to review by the Supreme Court. The next contention is that 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. But the Supreme Court to sustain this argument of the appellant would be to indirectly subvert and public policy overturn the protection given by Article 1484. "To sustain appellant's argument is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection given by Article 1484 would be indirectly subverted, and public policy overturned."
FILINVEST CREDIT CORP. vs. CA & Sps. SY BANG (G.R. No. 82508;September 29, 1989) FACTS: Herein private respondents sps. Sy Bang were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. They intended to buy rock crusher from Rizal Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for financial assistance from herein petitioner Filinvest Credit Corporation, who agreed to extend financial aid on the certain conditions.A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1981, payable as follows: P10,000.00 first 3 months, P23,000.00 next 6 months, P24,800.00 next 15 months. It was likewise stipulated that at the end of the two-year period, the machine would be owned by the private respondents. Thus the private respondent issued in favor of the petitioner a check for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the private respondent executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the spouses. However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints of the spouses about the machine. As a consequence, petitioner extrajudicially foreclosed the real estate mortgage. The spouses filed a complaint before the RTC. The RTC ruled in favor of private respondent, then affirmed by CA.
ISSUE: w/n PRs cause of action should be against original owner-seller of the subject rock crusher as claimed by P; w/n the nature of their contract is that of a contract of sale HELD: While it is accepted that the petitioner is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment" with the private respondents. Be that as it may, the real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. It is apparent here that the intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the private respondents. This form of agreement has been criticized as a lease only in name. The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code which provides for the remedies of an unpaid seller of movables on installment basis. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid. It is thus for these reasons that Article 1485 of the new Civil Code provides that: Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing. LAYUG vs. IAC &GABUYA (GR No. 75364; Nov. 23, 1988) FACTS: A contract for the purchase on installments by Antonio Layug of twelve (12) lots owned by Rodrigo Gabuya, situated at Barrio Bara-as, Iligan City was entered into, the price for the lots at P120,000.00 payable in three (3) yearly instalments. The contract also provided for the automatic cancellation of the contract and forfeiture of all installments thus far paid, which would be considered as rentals for the use of the lots in case of non-compliance with the terms and conditions set therein. Layug paid the first two annual installments, totalling P80,000.00. But he failed to pay the last installment of P40,000.00, which fell due on October 5, 1980. Gabuya made several informal demands for payment; and when all these proved unavailing, he made a formal written demand therefor. When this, too, went unheeded, Gabuya finally brought suit for the annulment of his contract with Layug and for the recovery of damages. The Trial Court's judgment went against Layug, declaring the contract of conditional sale cancelled, and forfeited in Gabuya's favor all payments made by Layug, considering them as rentals for the 12 lots for the period from the perfection of the contract in 1978 to June 11, 1981, besides requiring him to pay attorney's fees. The judgment was, on appeal, affirmed by the Court of Appeals, except that it made the application of the forfeited payments, as rentals, extend up to the date of its decision: August 30, 1985. Petitioner adverts to the stipulation in his contract (a) granting him, as vendee, a "30 days grace period within which to pay" any yearly installment not paid within the time fixed therefor, and (b) declaring him liable, in the event of his failure to pay within the grace period, "for interest at the legal rate." He argues that the stipulation indicates that rescission was not envisioned as a remedy against a failure to pay installments; such failure was not ground for abrogating the contract but merely generated liability for interest at the legal rate.
ISSUE:
HELD: The argument is unimpressive. It would negate the explicit provision that the failure to pay any of the yearly installments when due (or to comply with any other covenant) would automatically render the contract null and void. The grace period clause should be read conjointly with the stipulation on rescission, and in such a manner as to give both full effect. It is apparent that there is no such inconsistency between the two as would support a hypothesis that one cannot be given effect without making the other a dead letter. The patent and logical import of both provisions, taken together, is that when the vendee fails to pay any installment on its due date, he becomes entitled to a grace period of 30 days to cure that default by paying the amount of the installment plus interest; but that if he should still fail to pay within the grace period, then rescission of the contract takes place. The law provides inter alia that "in all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments, ..., where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments. In the case at bar, Layug had paid two (2) annual installments of P40,000.00 each. He is deemed therefore, in the words of the law, to have "paid at least two years of installments." He therefore had a grace period of "one month .. for every year of installment payments made," or two (2) months (corresponding to the two years of installments paid) from October 5, 1980 within which to pay the final installment. That he made no payment within this grace period is plain from the evidence. He has thus been left only with the right to a refund of the "cash surrender value of the payments on the property equivalent to fifty percent of the total payments made," or P40,000.00 (i.e., of the total payments of P80,000.00).<Such refund will be the operative act to make effective the cancellation of the contract by Gabuya, conformably with the terms of the law.