1 Bachrach v Milan

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-42256

April 25, 1935

THE BACHRACH MOTOR CO., INC., plaintiff-appellant, vs. PABLO A. MILLAN, defendant-appellee. Ohnick and Opisso for appellant. B. Francisco for appellee. GODDARD, J.: This action was instituted in the Court of First Instance of the City of Manila for the purpose of recovering an alleged balance due the plaintiff from the defendant on a promissory note executed by the latter on December 12, 1933. The trial court dismissed the action with costs against the plaintiff. This case was submitted for decision on the following agreed statement of facts: 1. That the plaintiff is a corporation duly organized according to the laws of the Philippine Islands, with its principal place of business in the City of Manila, and the defendant, Pablo A. Millan, is of legal age, and a resident of the City of Manila, Philippine Islands; 2. That on December 12, 1933, the defendant for value received, executed and delivered to the plaintiff his promissory note for the sum of P939 payable in the City of Manila, Philippine Islands, in monthly installments, as may be seen from a true copy of said promissory note, hereto attached, marked Appendix A, and made a part hereof; 3. That the said amount of P939 was the balance of the purchase price of one second hand Renault touring car purchased by the said defendant from the plaintiff, as may be seen from the chattel mortgage executed by the defendant in favor of the plaintiff, hereto attached, marked Appendix B, and made a part hereof, which chattel mortgage was executed by the defendant on the said date, December 12, 1933, and registered in the office of the Register of Deeds of the City of Manila; 4. That the defendant has violated the terms of the said promissory note and chattel mortgage by failing to pay the installments which fell due on December 22, 1933, and January 22 and February 22, 1934; 5. That after crediting the defendant with all the payments made by him on account of said promissory note, Appendix A, there is still due and owing from said defendant in favor of the plaintiff the sum of P928.50, together with interest thereon at the rate of 12 per cent per annum from March 17, 1934, until paid, as may be seen from the statement of account hereto attached, marked Appendix C, and made a part hereof;1ªvvphïl.nët 6. That the complaint in the present case was made by the plaintiff without foreclosing the said chattel mortgage, Appendix B; 7. The defendant had offered to return the said second hand Renault touring car to the plaintiff in payment of the full amount under the promissory note, Appendix A, and the chattel mortgage, Appendix B, but the said plaintiff refused to receive the same, and has filed this complaint for the full amount of the purchase price. The trial court, after embodying in its decision the above stipulation of facts, passed on to consider the provisions of article 1454-A of the Civil Code (Act No. 4122 of the Philippine Legislature) and held that inasmuch as that article gives the vendor the alternative of either cancelling the sale or foreclosing the mortgage and the vendor, appellant n this case, having elected not to foreclose the mortgage, it can only make use of the other alternative, that is, cancel the sale and retain the total amount of the installments already paid on account of the purchase price of the automobile bought by the defendant from the plaintiff. Upon this theory the trial court dismissed this case. The plaintiff-appellant's only assignment of error reads as follows: The lower court erred in holding that under article 1454-A of the Civil Code the vendor, who has sold a chattel on installments secured by mortgage of the chattel, has no other alternative but to either foreclose the mortgage or rescind the sale; and in holding that under said article, said vendor cannot demand the fulfillment of the obligation as contained in the promissory notes separately signed by the purchaser. 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. Undoubtedly the principal object of the above amendment was to remedy the abuses committed in connection with the foreclosure of chattel mortgages. 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. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full judgment of his original indebtedness. Under this amendment the vendor of personal property, the purchase price of which is payable in installments, has the right to cancel the sale or foreclose the mortgage if one has been given on the property. Whichever right the vendor elects he need not return to the purchaser the amount of the installments already paid, "if there be an agreement to that effect". Furthermore, if the vendor avails himself of the right to foreclose the mortgage this amendment prohibits him from bringing an action against the purchaser for the unpaid balance. In other words, under this amendment, 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. The question now before this court is, Can 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? Has 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? 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. The right to cancel a contract for the sale of personal property, payable in installments, in case the vendee fails to comply with the terms of the contract and the right to foreclose a mortgage, if one has been given on such property, in case the mortgagor fails to live up to the terms thereof are legal remedies which were available to a vendor long before Act No. 4122 was passed. This being so it follows that said Act, in so far as it refers to these remedies, is merely a redeclaration of rights which existed at the time that law was adopted. This Act however places a certain limitation on the privilege to exercise these rights in the case of installment sales of personal property in that they are now available to the vendor after the vendee has failed to pay two or more installments. It furthermore prescribes and limits the rights of the vendor after he has availed himself of either remedy. Before Act No. 4122 was adopted the legal right to exact the fulfillment of an obligation was also available to the person prejudiced by the failure of one of the obligors to comply with the terms of an obligation. Act No. 4122 does not expressly or impliedly prohibit the party injured by the failure of one of the obligors, in a sale of personal property on installments, from exacting the fulfillment of that obligation. Neither do the terms of that Act expressly provide nor do they imply that, upon failure to pay two or more installments on the purchase price of personal property sold on the installment plan, the vendor must "cancel the sale or foreclose the mortgage if one has been given on the property." In view of the foregoing, it is evident that the Legislature in adopting Act No. 4122 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. It is apparent that that part of article 1124 of the Civil Code, mentioned above, has not been repealed. Wherefore, we hold that 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. If he elects to cancel or foreclose he is bound by the provisions of article 1454-A of the Civil Code.1ªvvphïl.nët The judgment of the trial court is reversed and let judgment be entered in favor of the plaintiff and against the defendant for the sum of P928.50 with interest thereon at the rate of 12 per cent per annum from March 17, 1934, until paid in full, plus the sum of P232.12 as attorneys' fees and penalty, without costs in either instance. Malcolm, Hull, Butte, and Diaz, JJ., concur.