SALES (OUTLINE 4)

Prof. M.I.P. Romero/2016

V. Unpaid Seller – Arts. 1525 – 1535

VI. Remedies

a) Arts. 1484 – 1488

b) Recto Law

Macondray & Co. v. Eustaquio 64 Phil. 446 (1937)

Levy Hermanos v. Gervacio (GR L-46306; 10/27/1939)

Southern Motors v. Moscoso 2 SCRA 168 (1961)

Ridad v. Filipinas Investment 120 SCRA 246 (1983)

Radiowealth, Inc. v. Lavin 7 SCRA 804 (1963)

Tajanlangit v. Southern Motors 101 Phil. 606 (1957)

Nonato v. IAC (GR L-67181; 11/ 22/1985)

Zayas v. Luneta Motor 117 SCRA 726 (1982)

c) Maceda Law (R.A. 6552)

Leano v. CA (369 SCRA 36; 2001)

Olympia Housing v. Panasiatic Corp. (395 SCRA 2003; 2003)

Luzon Brokerage v. Maritime Bldg. (86 SCRA 305; 1978)

Fabrigas v. San Francisco del Monte 476 SCRA 247 (2005)

Layug v. IAC 167 SCRA 627 (1988)

Active Realty v. Daroya 382 SCRA 152 (2002)

VII. Warranties of the Seller – a) Arts. 1545 – 1581

b) Lemon Law

Lim v. CA and Luna (GR 118347; 10/24/1996)

PCIB and Industrial Corp. v. CA (274 SCRA 597; 1997)

Nutrimix Feeds Corp. v. CA (441 SCRA 357; 2004)

VIII. Obligations of the Vendee - Arts. 1582 – 1593

IX. Actions for Breach of Contract of sale of goods – Arts. 1594 – 1599

X. Extinguishment of Sale

a) Conventional Redemption

b) Legal Redemption
San Pedro v. Lee (430 SCRA 338)

XI. Assignment of Credit - cases to follow

XII. Lease - cases to follow III. Documents of Title

[G.R. No. 43683. July 16, 1937.]

MACONDRAY & CO., INC., plaintiff-appellant, vs. URBANO EUSTAQUIO, defendant-appellee.

Facts: The plaintiff sold the defendant a De Soto car, Sedan, for the price of which, P595, he executed in
its favor the note of May 22, 1934. Under this note, the defendant undertook to pay the car in twelve
monthly installments with 12 per cent interest per annum, likewise agreed that, should he fail to pay any
monthly installment together with interest, the remaining installments would become due and payable,
and the defendant shall pay 20 per cent upon the principal owing as attorney's fees, expenses of
collection which the plaintiff might incur, and the costs. To guarantee the performance of his obligations
under the note, the defendant on the same date mortgaged the purchased car in favor of the plaintiff, and
bound himself under the same condition stipulated in the note relative to the monthly installments,
interest, attorney's fees, expenses of collection, and costs. The mortgaged deed was registered on June
11, 1934, in the office of the register of deeds of the Province of Rizal. On the 22d of the same month, the
defendant paid P43.75 upon the first installment, and thereafter failed to pay any of the remaining
installments. In accordance with the terms of the mortgage, the plaintiff called upon the sheriff to take
possession of the car, but the defendant refused to yield possession thereof, whereupon, the plaintiff
brought the replevin sought and thereby succeeded in getting possession of the car. The car was sold at
public auction to the plaintiff for P250, the latter incurring legal expenses in the amount of P10.68.
According to the liquidation filed by the plaintiff, the defendant was still indebted in the amount of
P342.20, interest at 12 per cent from November 20, 1934, P110.25 as attorney's fees, and the costs.

Issue: whether or not Macondray may still claim the attorney’s fees and interests stipulated.

Held:
"Three remedies are available to the vendor who has sold personal property on the installment
plan.
(1) He may elect to exact the fulfillment of the obligation. (Bachrach Motor Co. vs. Millan, supra.)
– basis is the Civil Code.
(2) If the vendee shall have failed to pay two or more installments, the vendor may cancel the
sale. - basis is Act No. 4122, amendatory of the Civil Code.
(3) 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. - basis is Act No. 4122, amendatory of the Civil
Code.
And 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. In other words, as we see it, the Act does no more than qualify the remedy.
"The controlling purpose of Act No. 4122 is revealed to be to close the door to abuses committed
in connection with the foreclosure of chattel mortgages when sales were payable in installments.
That public policy, obvious from the statute, was defined and established by legislative authority.
It is for the courts to perpetuate it.
[G.R. No. 46306. October 27, 1939.]
LEVY HERMANOS, INC., plaintiff-appellant, vs. LAZARO BLAS GERVACIO, defendant-appellee.
Facts: On March 15, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro Blas Gervacio, a
Packard car. Defendant, after making the initial payment, executed a promissory note for the balance
of P2,400, payable on or before June 15, 1937, with interest at 12 per cent per annum, and to secure
the payment of the note, he mortgaged the car to the plaintiff. Defendant failed to pay the note at its
maturity; wherefore, plaintiff foreclosed the mortgage and the car was sold at public auction, at which
plaintiff was the highest bidder for P800. The present action is for the collection of the balance of
P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this admission, the parties
submitted the case for decision. The lower court applied the provisions of Act No. 4122, inserted as
articles 1454-A of the Civil Code, and rendered judgment in favor of the defendant. Plaintiff appealed.
Issue: whether or not levy can still collect the balance and whether or not Recto law is applicable at the
case.

Held: Article 1454-A of the Civil Code reads as follows:

"In a contract for the sale of personal property payable in installments, failure to pay two or more
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."

In Macondray & Co. vs. De Santos (33 Off. Gaz., 2170), we held that "in order to apply the provisions
of article 1454-A of the Civil Code it must appear that there was a contract for the sale of personal
property payable in installments and that there has been a failure to pay two or more installments."
The contract, in the instant case, while a sale of personal property, is not, however, one on
installments, but on straight term, in which the balance, after payment of the initial sum, should be
paid in its totality at the time specified in the promissory note. The transaction is not, therefore, the
one contemplated in Act No. 4122 and accordingly the mortgagee is not bound by the prohibition
therein contained as to its right to the recovery of the unpaid balance.
Undoubtedly, the law is aimed at those sales where the price is payable in several installments, for,
generally, it is in these cases that partial payments consist in relatively small amounts, constituting
thus a great temptation for improvident purchasers to buy beyond their means. There is no such
temptation where the price is to be paid in cash, or, as in the instant case, partly in cash and partly in
one term, for, in the latter case, the partial payments are not so small as to place purchasers off their
guard and delude them to a miscalculation of their ability to pay. Theoretically, perhaps, there is no
difference between paying the price in two installments and paying the same partly in cash and partly
in one installment, in so far as the size of each partial payment is concerned; but in actual practice the
difference exists, for, according to the regular course of business, in contracts providing for payment
of the price in two installments, there is generally a provision for initial payment. But all these
considerations are immaterial, the language of the law being so clear as to require no construction at
all.
The suggestion that the cash payment made in this case should be considered as an installment in
order to bring the contract sued upon under the operation of the law, is completely untenable. A cash
payment cannot be considered as a payment by installment, and even if it can be so considered, still
the law does not apply, for it requires non-payment of two or more installments in order that its
provisions may be invoked. Here, only one installment was unpaid.
[G.R. No. L-14475. May 30, 1961.]
SOUTHERN MOTORS, INC., plaintiff-appellee, vs. ANGEL MOSCOSO, defendant-appellant.
Facts: On June 6, 1957, plaintiff-appellee, Southern Motors, Inc. sold to defendant-appellant 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 (Annex A, complaint), to secure the payment of which, a chattel mortgage was constituted
on the truck in favor of the plaintiff (Annex B). Of said account of P4,915.00, the defendant had paid a
total of P550.00, which P110.00 was applied to the interest up to August 15, 1957, 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.

On November 4, 1957, the plaintiff filed a complaint against the defendant, to recover the unpaid balance
of the promissory note. Upon plaintiff's petition, embodied in the complaint, 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 of San Jose, Antique, where
defendant was residing on November 25, 1957, and said truck was brought to the plaintiff's compound in
Iloilo City, for safe keeping.

After attachment and before the trial of the case on the merits, acting upon the plaintiff's motion dated
December 23, 1957, for the immediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo on
January 2, 1958, sold the said truck at public auction in which plaintiff itself was the only bidder for
P1,000.00. The case had not been set for hearing then.

Issue: whether or not the immediate sale at public auction of said truck is tantamount to the foreclosure
of the chattel mortgage on said truck\

Held: We do not share the views of the appellant on this matter. Manifestly, the appellee 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
appellee 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 herein appellee 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.

In the case of Southern Motors, Inc. vs. Magbanua, G.R. No. L-8578, Oct. 29, 1956, we held:

"By praying that the defendant be ordered to pay it the sum of P4,690.00 together with the stipulated
interest at 14% per annum from 17 March 1954 until fully paid, plus 10% of the total amount due as
attorney's fees and costs of collection, the plaintiff elected to exact the fulfillment of the obligation and not
to foreclose the mortgage on the truck. Otherwise, it would not have gone to court to collect the amount
as prayed for in the complaint. Had it elected to foreclose the mortgage on the truck, all the plaintiff had to
do was to cause the truck to be sold at public auction pursuant to section 14 of the Chattel Mortgage Law.
The fact that aside from the mortgaged truck, another Chevrolet truck and two parcels of land belonging
to the defendant were attached, shows that the plaintiff did not intend to foreclose the mortgage.
"As the plaintiff has chosen to exact the fulfillment of the defendant's obligation, the former may enforce
execution of the judgment rendered in its favor on the personal and real property of the latter not exempt
from execution sufficient to satisfy the judgment. That part of the judgment against the properties of the
defendant except the mortgaged truck and discharging the writ of attachment on his other properties is
erroneous."
||| (Southern Motors, Inc. v. Moscoso, G.R. No. L-14475, [May 30, 1961], 112 PHIL 94-99)
We perceive nothing unlawful or irregular in appellee's act of attaching the mortgaged truck itself. Since
herein appellee 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. (Sections 1 & 11, Rule 59; sec. 16 Rule 39.) 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
(Tizon vs. Valdez, 48 Phil., 910-911).|||

[G.R. No. L-39806. January 27, 1983.]

LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees, vs. FILIPINAS INVESTMENT and FINANCE
CORPORATION, JOSE D. SEBASTIAN and JOSE SAN AGUSTIN, in his capacity as
Sheriff, defendant-appellants.

Facts: plaintiffs purchased from the Supreme Sales and Development Corporation two (2) brand new
Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly installments. To
secure payment thereof, plaintiffs executed on the same date a promissory note covering the purchase
price and a deed of chattel mortgage not only on the two vehicles purchased but also on another car
(Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by the defunct Public
Service Commission for the operation of a taxi fleet. 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 extrajudicially, 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 on November 16, 1965, 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 at the public auction sale, the franchise of plaintiffs to operate five units of taxicab
service was sold for P'8,000 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.

Issue: whether or not chattel mortgage in so far as the franchise and the subsequent sale thereof is valid

Held: "Art. 1484. 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."
Under Article 1484 of the Civil Code, the vendor of personal property, the purchase 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.
(Luneta Motor Co. vs. Dimagiba, 3 SCRA 884; Radiowealth, Inc. vs. Lavin, 7 SCRA 804;
Industrial Finance Corporation vs. Tobias, 78 SCRA 28). Whichever right the vendor elects he
cannot avail of the other, these remedies being alternative, not cumulative. (Industrial Finance
Corp. vs. Tobias, Ibid; Cruz vs. Filipinas Investment and Finance Corp., 23 SCRA 791).|||
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. (Luneta Motor Co. vs. Dimagiba, Supra;
Northern Motors, Inc. vs. Sapinoso, 33 SCRA 356). 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. |||