G.R. No. L-42256, 25 April 1935, 61 Phil 409

FACTS:

Defendant Millan bought a second hand Renault touring car from plaintiff Bachrach Motor Co. The amount of P939 was the balance of the purchase price of the said car which defendant and plaintiff agreed that the payment of such balance shall be in a monthly installment basis. Thus, on December 12, 1933, owing to the said transaction, defendant executed a promissory note for the sum of P939 and a chattel mortgage in favor of defendant, duly registered with the Register of Deeds of the City of Manila.

Subsequently, defendant failed to pay the installments which fell due on December 22, 1933, and January 22 and February 22, 1934 thus violating the terms of the said promissory note and chattel mortgage. As of March 17, 1934, after crediting to defendant of all the payments made, the defendant still owes the sum of P928.50 together with the interest at the rate of 12 per cent per annum. Defendant offered to return the second hand Renault touring car to the plaintiff in payment of the full amount under the promissory note and the chattel mortgage, but the plaintiff refused to receive the same, and has filed this complaint for the full amount of the purchase price.

ISSUE:

Whether a vendor of personal property on the installment plan, upon the failure of the purchaser to comply with his obligation under such a contract, exact the fulfillment of that obligation, or does article 1454-A deprive him of that right and limit him to the right to cancel such a sale or foreclose a mortgage if one has been given on the property.

Whether the adoption of article 1454-A, amending article 1454 of the Civil Code also repealed that part of article 1124 of the Civil Code, which gives the prejudiced person the right to exact the fulfillment of an obligation.

RULING:

Article 1454 of the Civil Code, as amended by Act No. 4122 of the Philippine Legislature, now reads:

ART. 1454. When earnest money or a pledge has been given to bind the contract of purchase and sale, the contract may be rescinded if the vendee should be willing to forfeit the earnest money or pledge or the vendor to return double the amount.

ART. 1454-A. 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.

The same rule shall apply to leases of personal property with option to purchase, when the lessor has chosen to deprive the lessee of the enjoyment of such personal property.

This amendment prevents 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. Thus, 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.

Meanwhile article 1124 of the Civil Code provides:

ART. 1124. The right to resolve reciprocal obligations, in case one of the obligors should fail to comply with that which is incumbent upon him, is deemed to be implied.

The person prejudiced may choose between exacting the fulfillment of the obligation or its resolution with indemnity for losses and payment of interest in either case. He may also demand the resolution of the obligation even after having elected its fulfillment, should the latter be found impossible.

In harmonizing the aforementioned provisions, It is apparent that that part of article 1124 of the Civil Code, mentioned above, has not been repealed. In enacting Act No. 4122 , the legislature did not intend to limit the remedies available to a vendor of personal property on the installment plan to the right to cancel the sale or foreclose the mortgage if one had been given on the property. The real object of that law is to prevent the exercise of either of these rights by such a vendor until after the vendee has failed to pay two or more installments and furthermore to prescribe and limit the rights of the vendor after he has availed himself of either of the remedies mentioned therein.

Therefore in a sale of personal property on the installment plan the vendor may elect to exact the fulfillment of the obligation, as the plaintiff has done in this case, cancel the sale or foreclose his mortgage if one has been given on the property so sold. But if he elects to cancel or foreclose the mortgage, he is bound by the provisions of article 1454-A of the Civil Code.1ªvvphïl.nët

*Case digest by Jelyn C. Ondong, JD-4 Andres Bonifacio Law School, SY 2019-2020