G.R. No. 106418, 11 July 1996


Petitioners Daniel L. Borbon and Francisco Borbon signed a promissory note in favor of Pangasinan Auto Mart, Inc. or order in the amount of One Hundred Twenty Two Thousand Eight Hundred Fifty Six (P122,856.00) to be payable without need or notice or demand, in installments of the amounts following and the dates hereinafter set forth, to wit: P10,238.00 monthly for (twelve) 12 months due and payable on the 7th day of each month starting January, 1985, provided that at late payment charge of 3% per month shall be added on each unpaid installment from due date until fully paid. It likewise agreed that upon such default, attorney’s fees are availed of, an additional sum, equal to twenty five percent (25%) of the total sum due thereon, which shall not be less than Five Hundred Pesos, shall be paid to the holder hereof for attorney’s plus an additional sum equivalent to 25% of the total sum which likewise shall not be less than Five Hundred Pesos for liquidated damages, aside from expenses of collection and legal costs provided for in the rules of court.

To secure the promissory note, the defendant executed a chattel mortgage on “One (1) Brand New 1984 Isuzu, KCD 20 Crew Cab (Conv.) Serial No. KCD20DOF 207685k, Key No. 5509. The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest Credit Corporation on December 10, 1984, with notice to the defendants. On March 21, 1985, Filinvest Credit Corporation assigned all its rights, interests and title over the Promissory Note and the Chattel Mortage to the plaintiff.

The Promissory Note stipulates that the installment of P10, 238.00 monthly should be paid on the 7th day of each month starting January 1985, but the defendants failed to comply with their obligation. Because the defendants did not pay their monthly installments, Filinvest demanded from the defendants the payment of their installments due in January 29, 1985 by telegram. After the accounts were assigned to the plaintiff, the plaintiff attempted to collect by sending a demand letter to the defendants for them to pay their entire obligations which as of March 12, 1985, totaled P185, 257.80. The appellate court upheld the court a quo in the award of liquidated damages and attorney’s fees in favor of private respondent, hence, petitioners seek a modification of the decision of the appellate court invoking bthe provisions of Article 1484 of the New Civil Code.


Whether liquidated damages and attorney’s fees apply in cases involving contract of sale covered by Promissory Note and Chattel Mortgage.


The court modified the appealed decision by deleting therefrom the award for liquidated damages; in all other respects, the judgment of the appellate court is upheld.

Article 1484 of the Civil Code provides:

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 failed to pay;
2.) Cancel the sale, should the vendee’s failure to pay covered two or more installments;
3.) Foreclose the Chattel Mortgage or 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.

In Macondary & Co. vs. Eustaquio, we have said that the phrase “any unpaid balance” can only mean the deficiency judgment to which the mortgagee maybe entitled to when the proceeds from the auction sale are insufficient to cover the “full amount of the secured obligations which… include the interest on the principal, attorney’s fees, expenses of collection, and the costs”.

In sum, we have observed that the, legislative intent is not to merely limit the proscription of any further action to the” unpaid balance of the principal” but, as so later ruled in Luneta Motor Co., vs. Salvador, to all, other claims that may be likewise called in the accompanying Promissory Note against the buyer, mortgagor or his guarantor, including costs and attorney’s fees. Private respondent bewails the instant petition in that petitioners have failed to specifically raise the issue on liquidated damages and attorney’s fees stipulated in the actionable documents. In several cases, we have ruled that as long as the questioned items bear relevance and close relation to those specifically raised, the interest of justice would dictate that they too, must be considered.

Given the circumstances, we must strike down the award for liquidated damages made by the court a quo but we uphold the grant of attorney’s fees stipulated in the actionable documents.

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