Case Exercises

Article 1484 with Article 1485 and 1486

1. LUNETA MOTOR COMPANY VS. DIMAGIBA

3 SCRA 884 December 30, 1961

Facts:

Angel Dimagiba bought from the Luneta Motor Company a truck for a price which was
compromised at P16,126.12 payable in 18 monthly installments, to guarantee which he executed
a chattel mortgage on the same truck on May 7, 1956. As a further security thereto, he also
executed on the same date a chattel mortgage on another truck which belonged to the latter.
When Dimagiba failed to pay several installments as he agreed in the promissory note he
executed to cover the price of the truck he purchased, the company instituted an action not only
to recover the balance of his obligation but to secure the seizure of the two trucks mortgaged
with a prayer that the proceeds that may be realized after the sale of said trucks be applied to
the payment of the judgment that may be rendered in the case. Because of the vague nature of
the allegations contained in the complaint, as well as in its prayer, the court a quo, as well as the
Court of Appeals, considered the action taken as one of both replevin and foreclosure of
mortgage.

Issue:

WON the scheme of the company is a flagrant violation of Art. 1484 of the Civil Code.

Held:
YES. Art. 1484 prescribes three remedies which a vendor may pursue in a contract of sale of
personal property the price of which is payable in installments, to wit: (1) exact fulfillment of the
obligation; (2) cancel the sale; and (3) foreclose the mortgage on the thing sold. If he chooses the
third remedy, the article provides that he shall have no further action against the purchaser to
recover any unpaid balance of the purchase price. It even adds that any agreement to the
contrary shall be void.

But in the instant case the vendor was not content in choosing any of the three remedies, but
chose to avail itself of the first and third remedies. More than that, plaintiff even went to the
extent of suing for replevin, in other words, it filed an action containing three remedies: to collect
the purchase price, to seize the property purchased, and to foreclose the mortgage executed
thereon. Plaintiff even went to the extent of selling first the property of Noriel, who is not the
vendee, out of court, and after doing so, it asked the court for judgment in the balance. Such a
scheme is not only irregular but is a flagrant circumvention of the prohibition of the law.

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 2. PAMECA WOOD TREATMENT PLANT VS. CA & DBP
310 SCRA 281 July 14, 1999

Facts:
Pameca obtained a loan from DBP. By virtue of this loan, Pameca executed a promissory note for
the amount obtained, promising to pay the loan by installment. As security for said loan, a chattel
mortgage was executed over Pameca’s properties in Dumaguete. Upon Pameca’s failure to pay,
DBP extrajudicially foreclosed the chattel mortgage, and as sole bidder in the public auction,
purchased the same. DBP then filed a complaint for the collection of the balance. Trial court
rendered decision in favor of DBP, affirmed by CA.

Issue:
WON Art 1484, CC, can be applied in the case, hence, precludes DBP from collecting the balance.

Held:
NO.The said article applies clearly and solely to the sale of personal property the price of which
is payable in installments. Although Article 1484, paragraph (3) expressly bars any further action
against the purchaser to recover an unpaid balance of the price, where the vendor opts to
foreclose the chattel mortgage on the thing sold, should the vendees failure to pay cover two or
more installments, this provision is specifically applicable to a sale on installments.

To accommodate petitioners prayer even on the basis of equity would be to expand the
application of the provisions of Article 1484 to situations beyond its specific purview, and ignore
the language and intent of the Chattel Mortgage Law. Equity, which has been aptly described as
justice outside legality, is applied only in the absence of, and never against, statutory law or
judicial rules of procedure.

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 3. Pascual vs Universal Corp. 61 SCRA 121 November 20, 1974

FACTS:

Plaintiff-appellee spouses Lorenzo Pascual and Leonila Torres (spouses Pasqual) executed the
real estate mortgage subject matter of this complaint on December 14, 1960 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 Pascual’s principal, including the 5 units guaranteed under the
subject Real (Estate) Mortgage. During the hearing, 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:

Whether or not Article 1484 of the New Civil Code applicable in the case at bar?

HELD:

The Supreme Court affirmed the lower court’s 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

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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.

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 4. Southern Motors vs Moscoso 2 SCRA 168 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, 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. 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

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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.

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 5. Zayas vs Luneta Motors Co. GR No. L-30583 October 23, 1982

FACTS:

Zayas purchased a Ford Thames Freighter from Escano Enterprises, the dealer of Luneta Motor
Co. The unit was delivered and Zayas issued a PN payable in 26 installments secured by a chattel
mortgage over the subject motor vehicle. Zayas failed to pay, thus Luneta extra-judicially
foreclosed on the mortgage and was the highest bidder. However, considering that the proceeds
of the sale was insufficient to cover the debt, Luneta filed a case for the recovery of the balance
of the purchase price. Zayas refused to pay.

ISSUE: W/N Luneta may still recover the balance

HELD: NO. When the unpaid seller forecloses on the mortgage, the law precludes him from
bringing further actions against the vendee for whatever balance, which was not satisfied from
the foreclosure. Luneta contends that Escano Enterprises is a different and distinct entity and
maintains that its contract with Zayas was a loan. This is unsubstantiated as the agency
relationship between Luneta and Escano is clear. Nevertheless, assuming that they were distinct
entities, the nature of the transaction remains the same. If Escano assigned its right to Luneta,
the latter merely acquires the rights of the formers—hence, Art. 1484 of the CC would likewise
be inapplicable.

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 6. Ridad vs Filipinas Investment and Finance Corporation GR No. 39806 January 27, 1983

FACTS:

Ridad purchased from Supreme Sales 2 Ford Consul Sedans, payable in 24 installments, for which
he executed a PN with chattel mortgage over the said property. Another chattel mortgage was
executed this time upon a separate Chevy car, and another one upon the franchise to operate
taxi cabs. Supreme Sales thereafter assigned its rights under the PN to Filinvest. Ridad defaulted
and Filinvest foreclosed on the mortgage. It was the highest bidder for the foreclosure sale of the
sedans. But unable to fully satisfy the debt, it also foreclosed the Chevy and the franchise.

ISSUE: W/N Filinvest may still foreclose the Chevy and the franchise to fully satisfy the debt

HELD: NO. When the unpaid seller forecloses on the mortgage, the law precludes him from
bringing further actions against the vendee for whatever balance, which was not satisfied by the
first foreclosure. By choosing to foreclose on the Ford sedans, Filinvest renounced all other rights
which it might have had under the PN; it must content itself with the proceeds of the sale of the
sedans at the public auction.

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 7. Levy Hermanos Inc. vs Gervacio 69 Phil 62 October 27, 1939

FACTS: Levy Hermanos sold a Packard car to Lazaro Gervacio. Gervacio made an initial payment
and executed a promissory note for the balance of P2,400. He failed to pay the note at maturity
date so Levy Hermanos foreclosed the mortgage and bought it at the public auction for P800.
Levy Hermanos then filed a complaint for the collection of the remaining balance and interest.
CFI ruled in favor of Gervacio finding that Levy can no longer recover the unpaid balance once he
has chosen foreclosure. Thus the case at bar.

ISSUE: W/N Levy Hermanos can still collect the balance

HELD: YES

In order to apply Art. 1454-A of the CC, there must be (1) a contract of sale of personal property
payable in installments and (2) there has been a failure to pay 2 or more installments. In the case
at bar, although it is a sale of personal property, it is not payable in installments. It is payable in
a straight term in which the balance should be paid in its totality at maturity date of the PN,
therefore the prohibition does not apply.

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Article on Double Sale:

8. Ten Forty Realty v. Cruz

Ten Forty Realty filed a complaint of ejectment against Marina Cruz who has allegedly
occupied the residential lot in Olongapo City, which they bought from Barbara Galino, by
virtue of a Deed of Absolute Sale. It appears that Barbara sold the same lot to Marina who
immediately occupied the land. Ten Forty is saying the occupation by Marina was merely
tolerated by them.
Marina’s defense: (1) Ten Forty, being a corporation, is not qualified to own the property
which is a public land. (2) Barbara Galino did not sell her property to Ten Forty but merely
obtained a loan. (3) Ten Forty never occupied the property before she did. Barbara Galino
was in possession at the time of the sale, and vacated the lot in favor of Marina. (4) She
was the one who caused the cancellation of the tax declaration in the name of Barbara
and a new one was issued in her name. (5) Ten Forty only obtained its tax declaration 7
months after she did.
MTCC ruled in favor of Ten Forty and ordered Marina to vacate.
RTC reversed. The RTC ruled as follows: 1) respondent’s entry into the property was not
by mere tolerance of petitioner, but by virtue of a Waiver and Transfer of Possessory
Rights and Deed of Sale in her favor; 2) the execution of the Deed of Sale without actual
transfer of the physical possession did not have the effect of making petitioner the owner
of the property, because there was no delivery of the object of the sale as provided for in
Article 1428 of the Civil Code; and 3) being a corporation, petitioner was disqualified from
acquiring the property, which was public land.
CA affirmed: Case cannot be unlawful detainer because there has been no prior contract
between the parties. Neither can it be forcibly entry because there is no showing that
there was prior physical possession by the petitioner.

ISSUE: WON Marina may be validly ejected from the property  NO

RULING:
1. In a contract of sale, the buyer acquires the thing sold only upon its delivery. The
execution of a public instrument gives rise to a presumption of delivery, but this
presumption is destroyed when delivery is not effected because of a legal impediment.
Constructive delivery is deemed negated upon failure of vendee to take actual possession
of the land. Ten Forty was not able to take possession and the SC found it highly unlikely
that they allowed occupation of Marina by mere tolerance.

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2. In cases of double sale, the person who first recorded it in the Registry of Property shall
be considered the lawful owner. In this case, however, petitioner was unable to establish
that the Deed was recorded in the Registry of Deeds of Olongapo. An unverified notation
on the Deed is not equivalent to a registration. In the absence of this requirement, the
law gives preferential right to the buyer who in good faith is first in possession.
3. To determine who is first in possession, the following parameters have been established:
a. Possession includes not only material but also symbolic possession
b. Possessors in good faith are not aware of any flaw in their title or mode of
acquisition
c. Buyers of property that is in possession of persons other than the seller must be
wary – they must investigate
d. Good faith is always presumed. Burden of proof rests on the one alleging bad faith.
Property has not been delivered, hence Ten Forty did not acquire possession either materially
or symbolically. Petitioner has not proven that respondent was aware of any defect to her
title. At the time, the property had not been registered which was why Marina relied on tax
declarations. Galino was actually occupying the property when respondent took possession.
Thus, there was no circumstance that could have required her to investigate further.

4. Private corporations are disqualified from acquiring lands of public domain. At the time
of the sale, there is no evidence that the property had already ceased to be of public
domain.

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9. Rural Bank v Dimatulac, et. Al.
There was a Deed of Sale between Rural Bank and Valentin & Razon (who had TCT;
vendees of Reyes), however, Rural Bank did not take actual possession of the property. It
is now suing to recover de facto possession of the lot.
Facts:
 August 17, 1965: Prudencia Reyes purchased from the now defunct RPA, an 800sqm
parcel of land >>> TCT No. 65765 was issued in her favor >>>
 TCT later cancelled by DAR due to her non-occupancy of said property >>> DAR made the
land available for distribution to the landless residents of San Rafael
 1971: respondents took possession of the property and were allocated portions of 200
square meters each. They paid the purchase price and awaited their Emancipation Patent
titles
 April 4, 1973: Despite her knowledge that the land had reverted to the government, Reyes
sold the property to the spouses Maximo Valentin and Retina Razon in a Deed of Sale.
 The spouses thereafter obtained TCT
 On finding, however, that respondents were in possession of the property, Valentin and
Razon filed a complaint for recovery and damages against respondents >>> RP intervened,
contended that the title of Valentin and Razon was null and void, because the sale by
Reyes was in violation of the terms and conditions of sale of the lot by the RPA to Reyes
>>> TC in favor of VR >>> CA cancelled the title of the spouses, and decreed the reversion
of the property to the government for disposition to qualified beneficiaries >>> decision
attained finality Sept 22, 1990
 During PENDENCY of abovementioned case, Razon, through her attorney-in-fact,
mortgaged the property to petitioner rural bank to secure a loan of P37,500 >>> Razon
failed to pay >>> Property extrajudicially foreclosed >>> Oct 1987, Rural Bank bought the
property

Relevant Issue Raised by RURAL: The Sept 22, 1990 Final and executory judgment of the Court
of Appeals does not bind the bank because it was not impleaded as a party by the Dimatulacs

SC: It does.
Legal Basis: Rule 39, Section 47 (b) of the 1997 Rules of Civil Procedure, speaks of conclusiveness
of judgment as "between the parties and their successors-in-interest by title subsequent to the
commencement of the action." In the present case, petitioner herein derived its title from the
Valentin and Razon spouses, after an extrajudicial foreclosure sale.

Explanation:
1. Under the law which permits a successor in interest to redeem the property sold on
execution, the term "successor-in-interest" includes one to whom the debtor has
transferred his statutory right of redemption; one to whom the debtor has conveyed his
interest in the property for the purpose of redemption; or one who succeeds to the
interest of the debtor by operation of law.

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2. Rural acquired its title while a case was pending before the Court of Appeals. To acquire
title, the successor-in-interest must do so subsequent to the commencement of the
action, and not before such commencement.
3. Having derived little from the Spouses Valentin and Razon, whose title was nullified by
the final and executory decision of the Court of Appeals in CA-G.R. CV No. 14909, the
petitioner cannot escape the effect of the appellate court's judgment in said case. The
rural bank as purchaser at an auction sale does not have a better right to said property
than their predecessors-in-interest, namely the Valentin and Razon couple.

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10. Occena v. Esponilla
Facts:
 The Tordesillas own lot 265. When they died their children Harold and Angela and
Grandchildren, Arnold and Lilia de la Flor inherited the land.
 1951-the heirs executed a deed of pacto de retro sale in favor of Alberta Morales
concerning the SW portion of the lot.
 1954- Arnold and Lilia executed a Deed of Definite Sale of Shares, rights and Interests over
the same portion in favor of Morales, attesting that the portion is their share in the estate.
Morales possessed the lot as owner.
 1956- Arnold borrowed the OCT from Morales and acknowledged receipt through an
Affidavit saying that the OCT will be held in trust by him and he will return it without any
changes.
 1966-Arnold and Angela executed a deed of extrajudicial settlement (w/o knowledge of
Morales) declaring the two of them as the only co-owners of the entire lot 265 without
acknowledging the previous sale of the portion to Morales. Alberta and nieces demanded
for the return of the OCT numerous times but Arnold just kept on promising to return it.
 1983-Angela died and Arnold declared himself as sole heir of Angela and consolidated the
title of the entire lot in his name.
 1985-Morales died. Her nieces succeeded in owning the lot. Before the nieces left for US
they again asked for the OCT so they can register it in their names but Arnold just
promised again.
 1986- Arnold used the OCT to subdivide the entire lot into three sublots, 265-A, -B, and -
C.
 1993-after the death of Arnold, the nieces learned of the second sale when they were
informed by their caretaker that the Occeñas are trying to eject them.
 1994- they filed the case for annulment of sale and cancellation of title against the
Occeñas saying that the latter were in bad faith because their caretaker informed the
Occeñas during the ocular inspection not to push through with the sale because the lot
has been previously sold to Morales who constructed a house thereon.
 The Occeñas claimed that the OCT in the name of the Tordesillas which was cancelled and
later transferred to the name of Angela and Arnold were without any adverse claim
annotated and they are not required to go beyond a clean certificate of title. The lot was
surveyed and subdivided without opposition from Morales and her nieces. And that they
relied on what Arnold said that the occupants were squatters and he just tolerated them.
They set up the defense of prescription and laches because of Morales’ failure to annotate
their claim for over 40 years.
 Trial Court ruled in favor of the Occeñas.
 CA reversed the ruling of TC.
Issue: WON the Occeñas own the lots.
Held: NO. They are buyers in bad faith.
 This is a case of double sale of an immovable property. Article 1544 of the New Civil Code
provides that in case an immovable property is sold to different vendees, the ownership

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 shall belong: (1) to the person acquiring it who in good faith first recorded it in the Registry
of Property; (2) should there be no inscription, the ownership shall pertain to the person
who in good faith was first in possession; and, (3) in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
 In all cases, good faith is essential. It is the basic premise of the preferential rights granted
to the one claiming ownership over an immovable. What is material is whether the second
buyer first registers the second sale in good faith, i.e., without knowledge of any defect
in the title of the property sold. The defense of indefeasibility of a Torrens title does not
extend to a transferee who takes the certificate of title in bad faith, with notice of a flaw.
 A purchaser in good faith and for value is one who buys property without notice that some
other person has a right to or interest in such property and pays its fair price before he
has notice of the adverse claims and interest of another person in the same property. ,
Occeña admitted that he found houses built on the land during its ocular inspection prior
to his purchase. He relied on the representation of vendor Arnold that these houses were
owned by squatters and that he was merely tolerating their presence on the land. He
should have verified from the occupants of the land the nature and authority of their
possession instead of merely relying on the representation of the vendor that they were
squatters, having seen for himself that the land was occupied by persons other than the
vendor who was not in possession of the land at that time.
 the settled rule is that a buyer of real property in the possession of persons other than the
seller must be wary and should investigate the rights of those in possession. Without such
inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any
right over the property
 Indeed, the general rule is that one who deals with property registered under the Torrens
system need not go beyond the same, but only has to rely on the title. He is charged with
notice only of such burdens and claims as are annotated on the title. However, this
principle does not apply when the party has actual knowledge of facts and circumstances
that would impel a reasonably cautious man to make such inquiry or when the purchaser
has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce
a reasonably prudent man to inquire into the status of the title of the property in litigation.
 They did not inquire from the caretaker how they could get in touch with the heirs of
Morales to verify the ownership of the land. Having discovered that the land they
intended to buy was occupied by a person other than the vendor not in actual possession
thereof, it was incumbent upon the petitioners to verify the extent of the occupant’s
possessory rights.
 Laches cannot be used to defeat justice or perpetuate fraud and injustice. Prescription
does not apply when the person seeking annulment of title or reconveyance is in
possession of the lot because the action partakes of a suit to quiet title which is
imprescriptible.
 It likewise bears to stress that when vendor Arnold reacquired title to the subject property
by means of fraud and concealment after he has sold it to Morales, a constructive trust
was created in favor of Morales and her heirs. As the defrauded parties who were in

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actual possession of the property, an action to enforce the trust and recover the property
cannot prescribe.

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