DIGEST

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-25951

June 30, 1969

FILIPINAS INVESTMENT & FINANCE CORPORATION, plaintiff-appellant,

vs.
JULIAN R. VITUG, JR. and SUPREME SALES & DEVELOPMENT CORPORATION, defendantsappellees.
Wilhelmina V. Joven for plaintiff-appellant.
Antonio V. Borromeo for defendants-appellants.
BARREDO, J.:
Appeal from an order of dismissal by the Court of First Instance of Manila, in its Civil Case No.
60915, entitled Filipinas Investment & Finance Corporation vs. Julian R. Vitug, Jr. and Supreme
Sales & Development Corporation, of the amended complaint of July 16, 1965 of plaintiff-appellant
Filipinas Investment & Finance Corporation whereby it sought to recover from defendant-appellee
Supreme Sales & Development Corporation the deficiency that resulted after it had foreclosed the
chattel mortgage on and sold at public auction, the car of the other defendant, Julian Vitug, Jr. who
had failed to pay to appellee installments due on the promissory note representing the purchase
price of said car which he had bought from the same, appellant being the assignee of appellee of its
rights in the said promissory note.
The material allegations in appellant's amended complaint are:
The defendant, Julian R. Vitug, executed and delivered to appellee a promissory note in the amount
of P14,605.00 payable in monthly installments according to a schedule of payments; the payment of
the aforesaid amount which was the purchase price of a motor vehicle, a 4-door Consul sedan,
bought by said defendant from appellee, was secured by a chattel mortgage over such automobile;
on the same day, appellee negotiated the above-mentioned promissory note in favor of appellant
Filipinas Investment & Finance Corporation, assigning thereto all its rights, title and interests to the
same, the assignment including the right of recourse against appellee; defendant Vitug defaulted in
the payment of part of the installment which fell due on January 6, 1965, as well as the subsequent
three consecutive monthly installments which he was supposed to have paid on February 6, March 6
and April 6, 1965; there being a provision in the aforesaid promissory note and chattel mortgage that
failure to pay the installments due would result in the entire obligation becoming due and
demandable, appellant demanded from appellee the payment of such outstanding balance; in turn,
appellee "authorized (appellant) to take such action as may be necessary to enable (it) to take
possession of the ... motor vehicle." Pursuant to such authority, appellant secured possession of the
mortgaged vehicle by means of a writ of replevin duly obtained from the court, preparatory to the

foreclosure of the mortgage, but said writ became unnecessary because upon learning of the same,
defendant Vitug voluntarily surrendered the car to appellant; thereafter, the said car was sold at
public auction, but the proceeds still left a deficiency of P8,349.35, plus interest of 12% per annum
from April 21, 1965; and appellant, the above foreclosure and sale notwithstanding, would hold
appellee liable for the payment of such outstanding balance, plus attorney's fees and costs.
On August 4, 1965, appellee filed an urgent motion to dismiss on the ground, inter alia, that under
Article 1484 of the Civil Code of the Philippines, which particular provision is otherwise known as the
Recto Law, appellant has no cause of action against appellee. Said provision is as follows:
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.
In its order of August 30, 1965, subject of this appeal, the lower court found the aforesaid ground to
be meritorious and, as already stated, the amended complaint was dismissed as to appellee
Supreme Sales & Development Corporation. According to the order of dismissal:
It is undisputed in the instant case that the amount of P14,605.00 mentioned as
consideration in both the promissory note and the chattel mortgage in the instant case
represents the selling price of one (1) automobile New Ford Consul 315 4-door Sedan,
payable in the installments mentioned in said documents. Under pars. 5 and 9 of the
amended complaint, the writ of replevin was obtained in the instant case for purposes of
foreclosure of mortgage. In applying for a writ of replevin, the plaintiff thereby made his
choice, namely, to foreclose the mortgage covering said automobile; and having accepted
said automobile from defendant Julian R. Vitug, Jr., what remains is for the plaintiff to sell
said automobile through either a judicial or an extrajudicial foreclosure of said mortgage,
without benefit of a deficiency judgment or deficiency collection ... should the proceeds of the
foreclosure sale be less than the balance of the installment sale price of said automobile due
and collectible.
On September 23, 1965, appellant filed a motion for reconsideration but this was denied on October
26, 1965, hence, this appeal.
The principal error assigned by appellant has reference to the applicability of Art. 1484 of the Civil
Code, as amended, to the facts of this case. Appellant maintains that: .
II
THE TRIAL COURT ERRED IN HOLDING THAT ARTICLE 1484 OF THE CIVIL CODE OF
THE PHILIPPINES IS APPLICABLE TO THE TRANSACTION BETWEEN PLAINTIFFAPPELLANT AND DEFENDANT-APPELLEE.
Under the facts alleged in the amended complaint which are deemed admitted by the motion to
dismiss, 1 this assignment of error must be sustained.

The specific allegations in the amended complaint which have material bearing on the issue herein
are:
4. On November 4, 1964, defendant Supreme Sales & Development Corporation, with notice
to defendantJulian R. Vitug, Jr. negotiated in favor of (endorsed and delivered to) plaintiff the
above-mentioned promissory note, Annex "A", on a with recourse basis whereby in case of
the failure and/or refusal of the maker thereof, defendant Julian R. Vitug, Jr. to pay the
obligation under the said promissory note, plaintiff shall have the right to recourse against
the said defendant corporation.
On the same date, the said defendant corporation, with notice to defendant Julian R. Vitug,
Jr., assigned to plaintiff its rights, title, and interests to the aforesaid promissory note and
chattel mortgage, Annexes "A" and "B" hereof, as shown by the Deed of Assignment
executed by defendant Supreme Sales & Development Corporation in favor of plaintiff, a
copy of which is hereto attached as Annex "C" and made an integral part hereof, which
assignment is also subject to the right of recourse above-mentioned.
13. The defendant corporation is liable to plaintiff for the entire balance of the obligation
covered by the promissory note, Annex "A", and secured by the chattel mortgage, Annex "B",
as a general endorser of the promissory note, Annex "A", and assignor of the chattel
mortgage on a with- recourse basis. But should plaintiff be able to sell the above-described
motor vehicle, then the said defendant corporation is liable to the plaintiff for the payment of
the balance of the obligation after applying thereto the proceeds of the sale of the said
vehicle. (Record on Appeal, pp. 12 and 15.)
Thus it can be seen that the assignment made by appellee to appellant of the promissory note and
mortgage of defendant Vitug was on a with-recourse basis. In other words, there was a definite and
clear agreement between appellant and appellee that should appellant fail to secure full recovery
from defendant Vitug, the right was reserved to appellant to seek recourse for the deficiency against
appellee. Accordingly, the question for resolution by the Court now is whether or not this provision
regarding recourse contained in the agreement between appellant and appellee violates the Recto
Law which declares null and void any agreement in contravention thereof. We do not believe that it
does.
As pointed out in appellant's brief, the transaction between appellant and appellee was purely an
ordinary discounting transaction whereby the promissory note executed by defendant Vitug was
negotiated by appellee in favor of appellant for a valuable consideration at a certain discount,
accompanied by an assignment also of the chattel mortgage executed by said defendant to secure
the payment of his promissory note and with the express stipulation that should there be any
deficiency, recourse could be had against appellee. Stated otherwise, the remedy presently being
sought is not against the buyer of the car or the defendant Vitug but against the seller, independent
of whether or not such seller may have a right of recovery against the buyer, which, in this case, he
does not have under the Recto Law. It is clear to Us, on the other hand, that under said law, what
Congress seeks to protect are only the buyers on installment who more often than not have been
victimized by sellers who, before the enactment of this law, succeeded in unjustly enriching
themselves at the expense of the buyers because aside from recovering the goods sold, upon
default of the buyer in the payment of two installments, still retained for themselves all amounts
already paid, in addition, furthermore, to other damages, such as attorney's fees, and costs. Surely,
Congress could not have intended to impair and much less do away with the right of the seller to

make commercial use of his credit against the buyer, provided said buyer is not burdened beyond
what this law allows.
1awphil.nt

We are not unmindful that in the case of Cruz, et al. vs. the same Filipinas Investment & Finance
Corporation, L-24772, May 27, 1968, 23 SCRA 791, this Court broadened the scope of the Recto
Law beyond its letter and held that within its spirit, a seller of goods on installment does not have any
right of action against a third party who, in addition to the buyer's mortgage of the goods sold,
furnishes additional security for the payment of said installments or the purchase price of said goods.
In that case, it was held:.
It is here agreed that plaintiff Cruz failed to pay several installments as provided in the
contract; that there was extrajudicial foreclosure of the chattel mortgage on the said motor
vehicle; and that defendant-appellant itself bought it at the public auction duly held thereafter,
for a sum less than the purchaser's outstanding obligation. Defendant-appellant, however,
sought to collect the supposed deficiency by going against the real estate mortgage which
was admittedly constituted on the land of plaintiff Reyes as additional security to guarantee
the performance of Cruz' obligation, claiming that what is being withheld from the vendor, by
the proviso of Article 1484 of the Civil Code, is only the right to recover against the
purchaser, and not a recourse to the additional security put up, not by the purchaser himself,
but by a third person.
There is no merit in this contention. To sustain appellants argument is to overlook the fact
that if the guarantor should be compelled to pay the balance of the purchase price, the
guarantor will in turn be entitled to recover what she had paid from the debtor vendee (Art.
2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the
payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage
given by him. Thus, the protection given by Article 1484 would be indirectly subverted, and
public policy overturned.
As can be seen, that ease of Cruz was entirely different from this one at bar. In that case, herein
appellant Filipinas Investment & Finance Corporation was trying to recover from the guarantor of the
buyer, whereas in the present case, it is precisely stipulated in effect, that the Filipinas Investment &
Finance Corporation had a right of recourse against the seller should the buyer fail to pay the
assigned credit in full.
It is the contention of appellee that since what were assigned to appellant were only whatever rights
it had against the buyer, it should follow that inasmuch as appellee has no right to recover from the
defendant beyond the proceeds of the foreclosure sale, the appellant, as assignee, should also have
no right to recover any deficiency. We do not view the matter that way. The very fact that the
assignee was given the stipulated right of recourse against the assignor negates the idea that the
parties contemplated to limit the recovery of the assignee to only the proceeds of the mortgage sale.
ACCORDINGLY, the order of dismissal of the lower court is reversed and this case is ordered
remanded to the lower court for further proceedings, with costs against appellee Supreme Sales &
Development Corporation.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Capistrano and Teehankee,
JJ., concur.
Dizon and Fernando, JJ., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-43263

October 31, 1935

MANILA TRADING & SUPPLY CO., plaintiff-appellant,

vs.
E.M. REYES, defendant-appellee.
Ross, Lawrence and Selph and Antonio T. Carrascoso, Jr., for appellant.
Isabel Artacho-Ocampo for appellee.

MALCOLM, J.:
The only question presented is the validity of Act No. 4122, known as the Installment Sales Law,
reading as follows:
AN ACT TO AMEND THE CIVIL CODE BY INSERTING BETWEEN SECTlONS FOURTEEN
HUNDRED AND FIFTY-FOUR AND FOURTEEN HUNDRED AND FIFTY-FIVE THEREOF A
NEW SECTION, TO BE KNOWN AS SECTION FOURTEEN HUNDRED AND FIFTY-FOURA.
Be it enacted by the Senate and House of Representatives of the Philippines in Legislature
assembled and by the authority of the same:
SECTION 1. The Civil Code is hereby amended by inserting between sections fourteen
hundred and fifty-four and fourteen hundred and fifty-five thereof a new section, to be known
as section fourteen hundred and fifty-four-A, which shall read as follows:
"SEC. 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 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."
SEC 2. This Act shall take effect on its approval.
Approved, December 9, 1933.
There is no dispute as to the facts. They may be summarize as follows: On December 13, 1933
that is, subsequent to the enactment of Act No, 4122 E.M. Reyes executed in favor of the Manila
Trading & Supply Co., a chattel mortgage on an automobile as security for the payment of the sum
of P400, which Reyes agreed to pay in ten equal monthly installments. As found by the trial judge,
Reyes failed to pay some of the installments due on his obligation. Thereupon the Manila Trading &
Supply Co., proceeded to foreclose its chattel mortgage. The mortgaged property was sold at public
auction by the sheriff of the City of Manila for the sum of P200, After applying this sum, with interest,
costs, and liquidated damages to Reyes' indebtedness, the latter owed the company a balance of
P275.47, with interest thereon at the rate of 12 percent per annum from February 19, 1934.
When Reyes failed to pay the deficiency on the debt, the company instituted an action in the Court of
First Instance of Manila for the recovery thereof. To plaintiff's complaint defendant filed an answer in
which he pleaded as a defense that plaintiff, having chosen to foreclose its chattel mortgage, had no
further action against defendant for the recovery of the unpaid balance owed by him to plaintiff, as
provided by Act No. 4122. After trial the lower court sustained defendant's defense and rendered a
judgment absolving him from the complaint, with costs.
From this judgment, the plaintiff has taken an appeal and here contends that the lower court erred in
not declaring Act No. 4122 of the Philippine Legislature unconstitutional for the following reasons: (1)
in that it embraces more than one subject, (2) in that it unduly restrains the liberty of a person to
contract with respect to his property rights, (3) in that it is class legislation, and (4) in that it denies
vendors and lessors of personal property the equal protection of the laws.
1. Title of the Law. Act No. 4122 is entitled, "An Act to amend the Civil Code by inserting between
sections fourteen hundred and fifty-four and fourteen, hundred and fifty-five thereof a new section, to
be known as section fourteen hundred and fifty-four-A." It is argued that the Act amends the Civil
Code and the Chattel Mortgage Law, Act No. 1508. As a consequence, it is alleged, that one of the
subjects covered by the Act, the amendment of the Chattel Mortgage Law, is not expressed in the
title thereof, in violation of section 3 of the Organic Act, the Act of Congress of August 29, 1916
which provides that no bill which may be enacted into law shall embrace more than one subject, and
that subject shall be expressed in the title of the bill."
We think that this is taking altogether too narrow and technical a view of the matter. Legislation
should not be embarrassed by overly strict construction. The constitutional provision, while designed
to remedy an evil, was not designed to require great particularity in stating the object of the law in its
title. In reality, while Act No. 4122 deals with three subjects, sales of personal property on the
installment plan, chattel mortgages, and leases of personal property with option to repurchase, all
three are comprehended within the subject of installment payments. (Macondray & Co. vs. R. de
Santos [1935], 61 Phil., 370.)
It would be well, however, to scrutinize this point a little more closely. The portion of the Civil Code
which is amended is Book IV, Title IV having to do with contract of purchase and sale and Chapter I

having to do with the nature and form of this contract. The Chattel Mortgage Law, in section 3,
defines a chattel mortgage as conditional sale of personal property as security for the payment a
debt or the performance of some other obligation specified therein. The close analogy between
chattel mortgages as covered by Act No. 1508 and conditional sales as covered by the Civil Code
gave this court considerable difficulty, but eventually it was determined that a chattel mortgage,
under Act No. 1508 is not of the Same effect as a contract of purchase and sale with right of
repurchase under the Civil Code. (Manila Trading & Supply Co. vs. Tamaraw Plantation Co. [1925],
47 Phil., 513, reconciling Meyers vs. Thein [1910], 15 Phil., 303; Bachrach vs. Mantel [1913] 25 Phil.,
410, and Bachrach Motor Co. vs. Summers [1921], 42 Phil., 3.) Likewise the close relationship
between chattel mortgages and conditional sales in other jurisdictions is evidenced by the fact that a
well-known text writer saw fit to choose this as the title for his work. (Jones, Chattel Mortgages and
Conditional Sales, 1933 ed.)
It could be added, if necessary, that the general rule is adopted in this jurisdiction to the effect that a
title which declares a statute to be an act to amend a specific code is sufficient and the precise
nature of the amendatory act need not be further stated. (People vs. Buenviaje [1925], 47 Phil., 536.)
On the supposition, therefore, which seems reasonable, that the purpose had in mind by the
Legislature in enacting Act No. 4122 was to provide legislation concerning sales of personal property
on the installment plan, this subject was sufficiently expressed by indicating that the law had to do
with an amendment of the Civil Code in the portion thereof given up to contract of purchase and
sale.
lawphil.net

2. Liberty of contract, class legislation, and equal protection of the laws. The question of the
validity of an act is solely one of constitutional power. Questions of expediency, of motive, or of
results are irrelevant. Nevertheless it is not improper to inquire as to the occasion for the enactment
of a law. The legislative purpose thus disclosed can then serve as a fit background for constitutional
inquiry.
Judge Moran in first instance had the following to say relative to the reasons for the enactment of Act
No. 4122:
Act No. 4122 aims to correct a social and economic evil, the inordinate love for luxury of
those who, without sufficient means, purchase personal effects, and the ruinous practice of
some commercial houses of purchasing back the goods sold for a nominal price besides
keeping a part of the price already paid and collecting the balance, with stipulated interest,
costs, and attorney's fees. For instance, a company sells a truck for P6,500. The purchaser
makes down payment of P500, the balance to be paid in twenty-four equal installments of
P250 each. Pursuant to the practice before the enactment of Act No. 4122, if the purchaser
fails to pay the first two installments, the company takes possession of the truck and has it
sold to at public auction at which sale it purchases the truck for a nominal price, at most
P500, without prejudice to its right to collect the balance of P5,500, plus interest, costs and
attorney's fees. As a consequence, the vendor does not only recover the goods sold, used
hardly two months perhaps with only slight wear and tear, but also collects the entire
stipulated purchase price, which probably swelled up fifty per cent including interest, costs,
and attorney's fees. This practice is worse than usurious in many instances. And although, of
course, the purchaser must suffer the consequences of his imprudence and lack of foresight,
the chastisement must not be to the extent of ruining the vendor in a manner which shocks
the conscience. The object of the law is highly commendable. As to whether or not the

means employed to do away with the evil above-mentioned are arbitrary will be presently set
out.
In a case which readied this court, Mr. Justice Goddard, interpreting Act No. 4122, made the
following observations:
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 amount 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." (Bachrach Motor
Co. vs. Millan [1935], 61 Phil., 409.)
Public policy having thus had in view the objects just outlined, we should next examine the law to
determine if notwithstanding that policy, it violates any of the constitutional principles dealing with the
three general subjects here to be considered.
In an effort to enlighten us, our attention has been directed to certain authorities, principally one
coming from the State of Washington and another from the State of Oregon. For reasons which will
soon appear, we do not think that either decision is controlling.
In 1897, an Act was passed in the State of Washington which provided "that in all proceedings for
the foreclosure of mortgages hereafter executed, or on judgments rendered upon the debt thereby
secured, the mortgagee or assignee shall be limited to the property included in the mortgage." It was
held by a divided court of three to two that the statute since limiting the right to enforce a debt
secured by mortgage to the property mortgaged, whether realty or chattels, was an undue restraint
upon the liberty of a citizen to contract with respect to his property rights. But as is readily apparent,
the Washington law and the Philippine law are radically different in phraseology and in effect
(Dennis vs. Moses [1898], 40 L.R.A., 302.)
In Oregon, in a decision of a later date, an Act abolishing deficiency judgments upon the foreclosure
of mortgages to secure the unpaid balance of the purchase price of real property was unanimously
sustained by Supreme Court of that State. The importance of the subject matter in that jurisdiction
was revealed by the fact tat four separate opinions were prepared by the justices participating, in
one of which Mr. Justice Johns, shortly thereafter to become a member of this court, concurred.
However, it is but fair to state that one of the reasons prompting the court to uphold the law was the
financial depression which had prevailed in the State. While in the Philippines the court can take
judicial notice of the stringency of finances that presses upon the people, we have no reason to

believe that this was the reason that motivated the enactment of Act No. 4122. (Wright vs. Wimberly
[1919], 184 Pac., 740.)
While we are on the subject of the authorities, we may state that we have examined all of those
obtainable, including some of recent date, but have not been enlightened very much because as just
indicated, they concerned different states of facts and different laws. We gain the most help from the
case of Bronson vs. Kinzie ([1843], 1 How., 311), decided by the Supreme Court of the United
States. It had under consideration a law passed in the State of Illinois, which provided that the
equitable estate of the mortgagor should not be extinguished for twelve months after sale on decree,
and which prevented any sale of the mortgaged properly unless two-thirds of the amount at which
the property had been valued by appraisers should be bid therefor.
The court, by Mr. Chief Justice Taney, declared: "Mortgages made since the passage of these laws
must undoubtedly be governed by them; for every State has the power to describe the legal and
equitable obligations of a contract to be made and executed within its jurisdiction. It may exempt any
property it thinks proper from sale, for the payment of a debt; and may impose such conditions and
restrictions upon the creditor as its judgment and policy may dictate. And all future contracts would
be subject to such provisions; and they would be obligatory upon the parties in the courts of the
United States, as well as in those of the State.
As we understand it, parties have no vested right in particular remedies or modes of procedure, and
the Legislature may change existing remedies or modes of procedure without impairing the
obligation of contracts, provided an efficacious remedy remains enforcement. But changes in the
remedies available for the enforcement of a mortgage may not, even when publicly policy is invoked
as an excuse, be pressed so far as to cut down the security of a mortgage without moderation or
reason or in a spirit of oppression. (Brotherhood of American Yeoman vs. Manz [1922], 206 Pac.,
403; Oshkosh Waterworks Co. vs. Oshkosh [1903], 187 U.S., 437; W.B. Worthen Co. vs. Kavanaugh
[1935], 79 U.S. Supreme Court Advance Opinions, 638.)
In the Philippines, the Chattel Mortgage Law did not expressly provide for a deficiency judgment
upon the foreclosure of a mortgage. Indeed, it required decisions of this court to authorize such a
procedure. (Bank of the Philippine Islands vs. Olutanga Lumber Co. [1924], 47 Phil., 20: Manila
Trading & Supply Co. vs. Tamaraw Plantation Co., supra.) But the practice became universal enough
to acquire the force of direct legislative enactment regarding procedure. To a certain extent the
Legislature has now disauthorized this practice, but bas left a sufficient remedy remaining.
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.) (2)
If the vendee shall have failed to pay two or more installments, the vendor may cancel the sale. (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. The basis of the first option is the Civil Code. The
basis of the last two options is Act No. 4112, 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 no more than qualify the remedy.
Most constitutional issues are determined by the court's approach to them. The proper approach in
cases of this character should be to resolve all presumptions in favor of the validity of an act in the
absence of a clear conflict between it and the constitution. All doubts should be resolved in its favor.

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.
We are of the opinion that the Legislature may change judicial methods and remedies for the
enforcement of contracts, as it has done by the enactment of Act No. 4122, without unduly interfering
with the obligation of the contracts, without sanctioning class legislation, and without a denial of the
equal protection of the laws. We rule that Act No. 4122 is valid and enforceable. As a consequence,
the errors assigned by the appellant are overruled, and the judgment affirmed, the costs of this
instance to be taxed against the losing party.
Avancea, C.J., Villa-Real, Abad Santos, Hull, Vickers, Goddard, Diaz, and Recto, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-28074 May 29, 1970 DONE!

NORTHERN MOTORS, INC., plaintiff-appellant,
vs.
CASIANO SAPINOSO and "JOHN DOE", defendants-appellees.
Sycip, Salazar, Luna, Manalo & Feliciano for plaintiff-appellant.
David F. Barrera for defendants-appellees.

VILLAMOR, J.:
Direct appeal on questions of law from the portion of the judgment of the Court of First Instance of
Manila, Branch XXII, in its Civil Case No. 66199, ordering the plaintiff to pay defendant Casiano
Sapinoso the sum of P1,250.00.
The facts of this case are as follows:

On June 4, 1965, Casiano Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car for
the price of P12,171.00, making a down payment and executing a promissory note for the balance of
P10,540.00 payable in installments with interest at 12% per annum, as follows: P361.00 on July 5,
1965, and P351.00 on the 5th day of each month beginning August, 1965, up to and including
December, 1967. To secure the payment of the promissory note, Sapinoso executed in favor of
Northern Motors, Inc. a chattel mortgage on the car. The mortgage contract provided, among others,
that upon default by the mortgagor in the payment of any part of the principal or interest due, the
mortgagee may elect any of the following remedies: (a) sale of the car by the mortgagee; (b)
cancellation of the contract of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure; (e) ordinary
civil action to exact fulfillment of the mortgage contract. It was further stipulated that "[w]hichever
remedy is elected by the mortgagee, the mortgagor expressly waives his right to reimbursement by
the mortgagee of any and all amounts on the principal and interest already paid by him."
Sapinoso failed to pay the first installment of P361.00 due on July 5, 1965, and the second, third,
fourth and fifth installments of P351.00 each due on the 5th day of August, September, October and
November, 1965, respectively. Several payments were, however, made by Sapinoso, to wit: P530.52
on November 21, 1965, P480.00 on December 21, 1965, and P400.00 on April 30, 1966. The first
and third payments aforesaid were applied to accrued interest up to April 17, 1966, while the second
payment was applied partly (P158.10) to interest, and partly (P321.90) to the principal, thereby
reducing the balance unpaid to P10,218.10.
The vendee-mortgagor having failed to make further payments, Northern Motors, Inc. filed the
present complaint on July 22, 1966, against Sapinoso and a certain person whose name, identity
and address were still unknown to the plaintiff, hence denominated in the complaint as "John Doe."
In its complaint, Northern Motors, Inc. stated that it was availing itself of the option given it under the
mortgage contract of extrajudicially foreclosing the mortgage, and prayed that a writ of replevin be
issued upon its filing of a bond for the seizure of the car and for its delivery to it; that after hearing,
the plaintiff be adjudged to have the rightful possession and ownership of the car; that in default of
delivery, the defendants be ordered to pay the plaintiff the sum of P10,218.10 with interest, at 12%
per annum from April 18, 1966, until full payment of the said sum, as well as an amount equivalent to
25% of the sum due as and for attorney's fees and expenses of collection, and the costs of the suit.
Plaintiff also prayed for such other remedy as might be deemed just and equitable in the premises.
Subsequent to the commencement of the action, but before the filing of his answer, defendant
Sapinoso made two payments on the promissory note, the first on August 22, 1966, for P500.00, and
the second on September 27, 1966, for P750.00. In the meantime, on August 9, 1966, upon the
plaintiff's filing of a bond, a writ of replevin was issued by the court. On October 20, 1966, copies of
the summons, complaint and annexes thereto were served on defendant Sapinoso by the sheriff
who executed the seizure warrant by seizing the car from defendant Sapinoso on the same date,
and turning over its possession to the plaintiff on October 25, 1966.
On November 12, 1966, defendant Sapinoso filed an answer admitting the allegations in the
complaint with respect to the sale to him of the car, the terms thereof, the execution of the
promissory note and of the chattel mortgage contract, and the options open to the plaintiff under the
said contract. He alleged, however, that he had paid the total sum of P4,230.52, leaving a balance of
only P5,987.58; that upon demand he immediately surrendered the possession of the car to the
plaintiff's representative; and that the value of the car was only about P5,000.00, and not P10,000.00
as alleged in the complaint. As special defenses the said defendant alleged that he failed to pay the
installments due because the car was defective, and the plaintiff failed to have it fixed although he

had repeatedly called the plaintiff's attention thereto, hence, the defendant had to procrastinate in his
payments in order to move the plaintiff to repair the car; and that although the car could not be used,
he paid P700.00 to the plaintiff upon the latter's assurance that the car would be fixed, but that
instead of having the car fixed, the plaintiff, in bad faith, filed the present complaint. The defendant
prayed that the complaint be dismissed and that the plaintiff be ordered to return the car to him. He
stated in his prayer that he would be very much willing to pay the car in a compromise agreement
between him and the plaintiff.
After trial, the court a quo, in its decision dated April 4, 1967, held that defendant Sapinoso having
failed to pay more than two (2) installments, plaintiff-mortgagee acquired the right to foreclose the
chattel mortgage, which it could avail of as it has done in the present case by filing an action of
replevin to secure possession of the mortgaged car as a preliminary step to the foreclosure sale
contemplated in the Chattel Mortgage Law; and that the foreclosure of the chattel mortgage and the
recovery of the unpaid balance of the price are alternative remedies which may not be pursued
conjunctively, so that in availing itself of its right to foreclose the chattel mortgage, the plaintiff
thereby renounced whatever claim it may have had on the promissory note, and, therefore, the
plaintiff has no more right to the collection of the attorney's fees stipulated in the promissory note,
and should return to defendant Sapinoso the sum of P1,250.00 which the plaintiff had received from
the latter after having filed the present case on July 22, 1966, and elected to foreclose the chattel
mortgage. The dispositive portion of the decision reads:
WHEREFORE, the Court finds that the plaintiff has the right to the possession of the
OPEL KADETT two-door station wagon Model 3464-91.5, with engine No.
10-0354333, and the delivery thereof to the plaintiff is hereby ratified and confirmed
but said party is sentenced to pay to the defendant the sum of P1,250, with legal
interest on P500 from August 22, 1966 and or P750 from September 27, 1966, until
fully paid, without any pronouncement as to costs.
In this appeal plaintiff-appellant claims that the court a quo erred in ordering it to reimburse to
defendant-appellee Sapinoso the sum of P1,250.00 which the latter had paid. It contends that under
Article 1484 of the Civil Code it is the exercise, not the mere election, of the remedy of foreclosure
that bars the creditor from recovering the unpaid balance of the debt; that what the said Article 1484
prohibits is "further action" to collect payment of the deficiency after the creditor has foreclosed the
mortgage; and that in paying plaintiff-appellant the sum of P1,250.00 before defendant-appellee
Sapinoso filed his answer, and in not filing a counterclaim for the recovery thereof, the said
defendant-appellee in effect renounced whatever right he might have had to recover the said
amount.
The appeal is meritorious.
In issuing a writ of replevin, and, after trial, in upholding plaintiff-appellant's right to the possession of
the car, and ratifying and confirming its delivery to the said plaintiff-appellant, the court below
correctly considered the action as one of replevin to secure possession of the mortgaged vehicle as
a preliminary step to this foreclosure sale contemplated in Section 14 of Act No. 1508 (Bachrach
Motor Co. vs. Summers, 42 Phil., 3; Seo vs. Pestolante, G.R. No. L-11755, April 23, 1958). The
said court however erred in concluding that the legal effect of the filing of the action was to bar
plaintiff-appellant from accepting further payments on the promissory note. That the ultimate object
of the action is the foreclosure of the chattel mortgage, is of no moment, for it is the fact of
foreclosure and actual sale of the mortgaged chattel that bar further recovery by the vendor of any

balance on the purchaser's outstanding obligation not satisfied by the sale. (Manila Motor Co., Inc.
vs. Fernandez, 99 Phil., 782, 786; Bachrach Motor Co. vs. Millan, 61 Phil., 409; Manila Trading &
Supply Co. vs. Reyes, 62 Phil. 461, 471; Cruz et al. vs. Filipinas Investment & Finance Corporation,
G.R. No. L-24772, May 27, 1968 [23 SCRA 791, 796].) In any event, what Article 1484(3) prohibits is
"further action against the purchaser to recover any unpaid balance of the price;" and although this
Court has construed the word "action" in said Article 1484 to mean "any judicial or extrajudicial
proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the supposed
unsatisfied balance of the purchase price from the purchaser or his privy" (Cruz, et al. vs. Filipinas
Investment & Finance Corporation, supra), there is no occasion at this stage to apply the restrictive
provision of the said article, because there has not yet been a foreclosure sale resulting in a
deficiency. The payment of the sum of P1,250.00 by defendant-appellee Sapinoso was a voluntary
act on his part and did not result from a "further action" instituted by plaintiff-appellant. If the
mortgage creditor, before the actual foreclosure sale, is not precluded from recovering the unpaid
balance of the price although he has filed an action of replevin for the purpose of extrajudicial
foreclosure, or if a mortgage creditor who has elected to foreclose but who subsequently desists
from proceeding with the auction sale, without gaining any advantage or benefit, and without causing
any disadvantage or harm to the vendee-mortgagor, is not barred from suing on the unpaid account
(Radiowealth, Inc. vs. Lavin, et al., G.R. No. L-18563, April 27, 1963 [7 SCRA 804, 807]), there is no
reason why a mortgage creditor should be barred from accepting, before a foreclosure sale,
payments voluntarily tendered by the debtor-mortgagor who admits a subsisting indebtedness.
PREMISES CONSIDERED, the judgment appealed from is modified by setting aside the portion
thereof which orders plaintiff-appellant to pay defendant-appellee Sapinoso the sum of P1,250.00,
with costs in this instance against the said defendant-appellee.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando and Teehankee, JJ., concur.
Barredo, J., concurs in the result.
Castro, J., is on leave.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24772

May 27, 1968

RUPERTO G. CRUZ, ET AL., plaintiffs-appellees,

vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, defendant-appellant.
Villareal, Almacen, Navarra and Associates for plaintiffs-appellees.
Sycip, Salazar, Luna, Manalo and Feliciano for defendant-appellant.
REYES, J.B.L., J.:

Appeal interposed by Filipinas Investment & Finance Corporation from the decision of the Court of
First Instance of Rizal (Quezon City) in Civil Case No. Q-7949.
1vvphi1.nt

In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes in the Court of First
Instance of Rizal (Civil Case No. Q-7949), for cancellation of the real estate mortgage constituted on
the land of the latter 1 in favor of defendant Filipinas Investment & Finance Corporation (as assignee
of the Far East Motor Corporation), the parties submitted the case for decision on the following
stipulation of facts:
1. Their personal circumstances and legal capacities to sue and be sued;
2. That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on installments, from the Far
East Motor Corporation, one (1) unit of Isuzu Diesel Bus, described in the complaint, for
P44,616.24, Philippine Currency, payable in installments of P1,487.20 per month for thirty
(30) months, beginning October 22, 1963, with 12 % interest per annum, until fully paid. As
evidence of said indebtedness, plaintiff Cruz executed and delivered to the Far East Motor
Corporation a negotiable promissory note in the sum of P44,616.24, ...;
3. That to secure the payment of the promissory note, Annex "A", Cruz executed in favor of
the seller, Far East Motor Corporation, a chattel mortgage over the aforesaid motor vehicle...;
4. That as no down payment was made by Cruz, the seller, Far East Motor Corporation, on
the very improvements thereon, in San Miguel, Bulacan...; same date, July 15, 1963,
required and Cruz agreed to give, additional security for his obligation besides the chattel
mortgage, Annex "B"; that said additional security was given by plaintiff Felicidad Vda. de
Reyes in the form of SECOND MORTGAGE on a parcel of land owned by her, together with
the building and
5. That said land has an area of 68,902 square meters, more or less, and covered by
Transfer Certificate of Title No. 36480 of the Registry of Deeds of Bulacan in the name of
plaintiff Mrs. Reyes; and that it was at the time mortgaged to the Development Bank of the
Philippines to secure a loan of P2,600.00 obtained by Mrs. Reyes from that bank;
6. That also on July 15, 1963, the Far East Motor Corporation for value received indorsed the
promissory note and assigned all its rights and interest in the Deeds of Chattel Mortgage and
in the Deed of Real Estate Mortgage (Annexes "A", "B" and "B-l") to the defendant, Filipinas
Investment & Finance Corporation, with due notice of such assignment to the plaintiffs...;
7. That plaintiff Cruz defaulted in the payment of the promisory note (Annex "A") ; that the
only sum ever paid to the defendant was Five Hundred Pesos (P500.00) on October 2, 1963,
which was applied as partial payment of interests on his principal obligation; that,
notwithstanding defendant's demands, Cruz made no payment on any of the installments
stipulated in the promissory note;
8. That by reason of Cruz's default, defendant took steps to foreclose the chattel mortgage
on the bus; that said vehicle had been damaged in an accident while in the possession of
plaintiff Cruz;

9. That at the foreclosure sale held on January 31, 1964 by the Sheriff of Manila, the
defendant was the highest bidder, defendant's bid being for Fifteen Thousand Pesos
(P15,000.00)...;
10. That the proceeds of the sale of the bus were not sufficient to cover the expenses of
sale, the principal obligation, interests, and attorney's fees, i.e., they were not sufficient to
discharge fully the indebtedness of plaintiff Cruz to the defendant;
11. That on February 12, 1964, preparatory to foreclosing its real estate mortgage on Mrs.
Reyes' land, defendant paid the mortgage indebtedness of Mrs. Reyes to the Development
Bank of the Philippines, in the sum of P2,148.07, the unpaid balance of said obligation...;
12. That pursuant to a provision in the real estate mortgage contract, authorizing the
mortgagee to foreclose the mortgage judicially or extra-judicially, defendant on February 29,
1964 requested the Provincial Sheriff of Bulacan to take possession of, and sell, the land
subject of the Real Estate Mortgage, Annex "B-1", to satisfy the sum of P43,318.92, the total
outstanding obligation of the plaintiffs to the defendant, as itemized in the Statement of
Account, which is made a part hereof as Annex "F"...;
13. That notices of sale were duly posted and served to the Mortgagor, Mrs. Reyes, pursuant
to and in compliance with the requirements of Act 3135...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a letter to the defendant
asking for the cancellation of the real estate mortgage on her land, but defendant did not
comply with such demand as it was of the belief that plaintiff's request was without any legal
basis;
15. That at the request of the plaintiffs, the provincial Sheriff of Bulacan held in abeyance the
sale of the mortgaged real estate pending the result of this action.
Passing upon the issues which, by agreement of the parties, were limited to (1) "Whether
defendant, which has already extrajudicially foreclosed the chattel mortgage executed by the buyer,
plaintiff Cruz, on the bus sold to him on installments, may also extrajudicially foreclose the real
estate mortgage constituted by plaintiff Mrs. Reyes on her own land, as additional security, for the
payment of the balance of Cruz' Obligation, still remaining unpaid"; and (2) whether or not the
contending parties are entitled to attorney's fees the court below, in its decision of April 21, 1965,
sustained the plaintiffs' stand and declared that the extrajudicial foreclosure of the chattel mortgage
on the bus barred further action against the additional security put up by plaintiff Reyes.
Consequently, the real estate mortgage constituted on the land of said plaintiff was ordered
cancelled and defendant was directed to pay the plaintiffs attorney's fees in the sum of P200.00.
Defendant filed the present appeal raising the same questions presented in the lower court.
There is no controversy that, involving as it does a sale of personal property on installments, the
pertinent legal provision in this case is Article 1484 of the Civil Code of the Philippines, 2 which reads:
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.
The aforequoted provision is clear and simple: should the vendee or purchaser of a personal
property default in the payment of two or more of the agreed installments, the vendor or seller has
the option to avail of any one of these three remedies either 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. These remedies have been recognized as alternative, not
cumulative, 3 that the exercise of one would bar the exercise of the others. 4 It may also be stated that
the established rule is to the effect that the foreclosure and actual sale of a mortgaged chattel bars
further recovery by the vendor of any balance on the purchaser's outstanding obligation not so
satisfied by the sale. 5 And the reason for this doctrine was aptly stated in the case of Bachrach
Motor Co. vs. Millan, supra, thus:
Undoubtedly the principal object of the above amendment

6 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
amount 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 in
agreement to that effect". Furthermore, if the vendor avails himself of the right to foreclose the mortgage the amendment prohibits
him from bringing an action against the purchaser for the unpaid balance.

It is here agreed that plaintiff Cruz failed to pay several installments as provided in the contract; that
there was extrajudicial foreclosure of the chattel mortgage on the said motor vehicle; and that
defendant-appellant itself bought it at the public auction duly held thereafter, for a sum less than the
purchaser's outstanding obligation. Defendant-appellant, however, sought to collect the supported
deficiency by going against the real estate mortgage which was admittedly constituted on the land of
plaintiff Reyes as additional security to guarantee the performance of Cruz' obligation, claiming that
what is being withheld from the vendor, by the proviso of Article 1484 of the Civil Code, is only the
right to recover "against the purchaser", and not a recourse to the additional security put up, not by
the purchaser himself, but by a third person.
There is no merit in this contention. To sustain appellant's argument is to overlook the fact that if the
guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be
entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code) ; so that
ultimately, it will be the vendee who will be made to bear the payment of the balance of the price,
despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection given by
Article 1484 would be indirectly subverted, and public policy overturned.
Neither is there validity to appellant's allegation that, since the law speaks of "action", the restriction
should be confined only to the bringing of judicial suits or proceedings in court.
The word "action" is without a definite or exclusive meaning. It has been invariably defined as

... the legal demand of one's right, or rights; the lawful demand of one's rights in the form
given by law; a demand of a right in a court of justice; the lawful demand of one's right in a
court of justice; the legal and formal demand of ones rights from another person or party,
made and insisted on in a court of justice; a claim made before a tribunal; an assertion in a
court of justice of a right given by law; a demand or legal proceeding in a court of justice to
secure one's rights; the prosecution of some demand in a court of justice; the means by
which men litigate with each other; the means that the law has provided to put the cause of
action into effect;.... (Gutierrez Hermanos vs. De la Riva, 46 Phil. 827, 834-835).
Considering the purpose for which the prohibition contained in Article 1484 was intended, the word
"action" used therein may be construed as referring to any judicial or extrajudicial proceeding by
virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied
balance of the purchase price from the purchaser or his privy. Certainly, an extrajudicial foreclosure
of a real estate mortgage is one such proceeding.
The provision of law and jurisprudence on the matter being explicit, so that this litigation could have
been avoided, the award by the lower court of attorney's fees to the plaintiff's in the sum of P200.00
is reasonable and in order.
However, we find merit in appellant's complaint against the trial court's failure to order the
reimbursement by appellee Vda. de Reyes of the amount which the former paid to the Development
Bank of the Philippines, for the release of the first mortgage on the land of said appellee. To the
extent that she was benefited by such payment, plaintiff-appellee Vda. de Reyes should have been
required to reimburse the appellant.
WHEREFORE, the decision appealed from is modified, by ordering plaintiff-appellee Felicidad Vda.
de Reyes to reimburse to defendant-appellant Filipinas Investment & Finance Corporation the sum
of P2,148.07, with legal interest thereon from the finality of this decision until it is fully paid. In all
other respects, the judgment of the court below is affirmed, with costs against the defendantappellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Fernando, J., is on leave.