G.R. No. L-30173 September 30, 1971 GAVINO A. TUMALAD an G!N!ROSA R. TUMALAD, plaintiffs-appellees, vs. AL"!RTA VI#!N#IO an !

MILIANO SIM!ON, defendants-appellants. Castillo & Suck for plaintiffs-appellees. Jose Q. Calingo for defendants-appellants.

R!$!S, %.".L., J.: Case certified to this Court by the Court of Appeals (CA-G.R. No. 2782 -R! for the reason that only "uestions of la# are involved. $his case #as ori%inally co&&enced by defendants-appellants in the &unicipal court of 'anila in Civil Case No. ()7(, for e*ect&ent. +avin% lost therein, defendants-appellants appealed to the court a "uo (Civil Case No. (),,(! #hich also rendered a decision a%ainst the&, the dispositive portion of #hich follo#s.+/R/01R/, the court hereby renders *ud%&ent in favor of the plaintiffs and a%ainst the defendants, orderin% the latter to pay *ointly and severally the for&er a &onthly rent of 22)).)) on the house, sub*ect-&atter of this action, fro& 'arch 27, 3,45, to 6anuary 3 , 3,57, #ith interest at the le%al rate fro& April 38, 3,45, the filin% of the co&plaint, until fully paid, plus attorney7s fees in the su& of 2()).)) and to pay the costs. 8t appears on the records that on 3 9epte&ber 3,44 defendants-appellants e:ecuted a chattel &ort%a%e in favor of plaintiffs-appellees over their house of stron% &aterials located at No. 44) 8nt. (, ;ue<on =oulevard, ;uiapo, 'anila, over >ot Nos. 5-= and 7-=, =loc? No. 244 , #hich #ere bein% rented fro& 'adri%al @ Co&pany, 8nc. $he &ort%a%e #as re%istered in the Re%istry of Aeeds of 'anila on 2 9epte&ber 3,44. $he herein &ort%a%e #as e:ecuted to %uarantee a loan of 2 ,8)).)) received fro& plaintiffs-appellees, payable #ithin one year at 32B per annu&. $he &ode of pay&ent #as 234).)) &onthly, startin% 9epte&ber, 3,44, up to 6uly 3,45, and the lu&p su& of 2(,34) #as payable on or before Au%ust, 3,45. 8t #as also a%reed that default in the pay&ent of any of the a&orti<ations, #ould cause the re&ainin% unpaid balance to beco&ei&&ediately due and 2ayable and C the Chattel 'ort%a%e #ill be enforceable in accordance #ith the provisions of 9pecial Act No. (3(4, and for this purpose, the 9heriff of the City of 'anila or any of his deputies is hereby e&po#ered and authori<ed to sell all the 'ort%a%or7s property after the necessary publication in order to settle the financial debts of 2 ,8)).)), plus 32B yearly & interest, and attorney7s fees...

.hen defendants-appellants defaulted in payin%, the &ort%a%e #as e:tra*udicially foreclosed, and on 27 'arch 3,45, the house #as sold at public auction pursuant to the said contract. As hi%hest bidder, plaintiffs-appellees #ere issued the correspondin% certificate of sale. 3 $hereafter, on 38 April 3,45, plaintiffs-appellant co&&enced Civil Case No. ()7( in the &unicipal court of 'anila, prayin%, a&on% other thin%s, that the house be vacated and its possession surrendered to the&, and for defendantsappellants to pay rent of 22)).)) &onthly fro& 27 'arch 3,45 up to the ti&e the possession is surrendered. ' 1n 23 9epte&ber 3,45, the &unicipal court rendered its decision C ... orderin% the defendants to vacate the pre&ises described in the co&plaintD orderin% further to pay &onthly the a&ount of 22)).)) fro& 'arch 27, 3,45, until such (ti&e that! the pre&ises is (sic! co&pletely vacatedD plus attorney7s fees of 23)).)) and the costs of the suit. ( Aefendants-appellants, in their ans#ers in both the &unicipal court and court a quo i&pu%ned the le%ality of the chattel &ort%a%e, clai&in% that they are still the o#ners of the houseD but they #aived the ri%ht to introduce evidence, oral or docu&entary. 8nstead, they relied on their &e&oranda in support of their &otion to dis&iss, predicated &ainly on the %rounds that- (a! the &unicipal court did not have *urisdiction to try and decide the case because (3! the issue involved, is o#nership, and (2! there #as no alle%ation of prior possessionD and (b! failure to prove prior de&and pursuant to 9ection 2, Rule 72, of the Rules of Court. )

Aurin% the pendency of the appeal to the Court of 0irst 8nstance, defendants-appellants failed to deposit the rent for Nove&ber, 3,45 #ithin the first 3) days of Aece&ber, 3,45 as ordered in the decision of the &unicipal court. As a result, the court %ranted plaintiffs-appellees7 &otion for e:ecution, and it #as actually issued on 2 6anuary 3,47. +o#ever, the *ud%&ent re%ardin% the surrender of possession to plaintiffs-appellees could not be e:ecuted because the sub*ect house had been already de&olished on 3 6anuary 3,47 pursuant to the order of the court in a separate civil case (No. 24835! for e*ect&ent a%ainst the present defendants for non-pay&ent of rentals on the land on #hich the house #as constructed. $he &otion of plaintiffs for dis&issal of the appeal, e:ecution of the supersedeas bond and #ithdra#al of deposited rentals #as denied for the reason that the liability therefor #as disclai&ed and #as still bein% liti%ated, and under 9ection 8, Rule 72, rentals deposited had to be held until final disposition of the appeal. 7 1n 7 1ctober 3,47, the appellate court of 0irst 8nstance rendered its decision, the dispositive portion of #hich is "uoted earlier. $he said decision #as appealed by defendants to the Court of Appeals #hich, in turn, certified the appeal to this Court. 2laintiffs-appellees failed to file a brief and this appeal #as sub&itted for decision #ithout it. Aefendants-appellants sub&itted nu&erous assi%n&ents of error #hich can be condensed into t#o "uestions, na&ely- . (a! .hether the &unicipal court fro& #hich the case ori%inated had *urisdiction to ad*udicate the sa&eD (b! .hether the defendants are, under the la#, le%ally bound to pay rentals to the plaintiffs durin% the period of one (3! year provided by la# for the rede&ption of the e:tra*udicially foreclosed house. .e #ill consider these "uestions seriatim. (a! Aefendants-appellants &ort%a%ors "uestion the *urisdiction of the &unicipal court fro& #hich the case ori%inated, and conse"uently, the appellate *urisdiction of the Court of 0irst 8nstance a quo, on the theory that the chattel &ort%a%e is void ab initioD #hence it #ould follo# that the e:tra*udicial foreclosure, and necessarily the conse"uent auction sale, are also void. $hus, the o#nership of the house still re&ained #ith defendants-appellants #ho are entitled to possession and not plaintiffs-appellees. $herefore, it is ar%ued by defendants-appellants, the issue of o#nership #ill have to be ad*udicated first in order to deter&ine possession. lt is contended further that o#nership bein% in issue, it is the Court of 0irst 8nstance #hich has *urisdiction and not the &unicipal court. Aefendants-appellants predicate their theory of nullity of the chattel &ort%a%e on t#o %rounds, #hich are(a! that, their si%natures on the chattel &ort%a%e #ere obtained throu%h fraud, deceit, or tric?eryD and (b! that the sub*ect &atter of the &ort%a%e is a house of stron% &aterials, and, bein% an i&&ovable, it can only be the sub*ect of a real estate &ort%a%e and not a chattel &ort%a%e. 1n the char%e of fraud, deceit or tric?ery, the Court of 0irst 8nstance found defendants-appellants7 contentions as not supported by evidence and accordin%ly dis&issed the char%e, * confir&in% the earlier findin% of the &unicipal court that Ethe defense of o#nership as #ell as the alle%ations of fraud and deceit ... are &ere alle%ations.E 9 8t has been held in 9upia and Batiaco vs. Quintero and Ayala 10 that Ethe ans#er is a &ere state&ent of the facts #hich the party filin% it e:pects to prove, but it is not evidenceD 11 and further, that #hen the "uestion to be deter&ined is one of title, the Court is %iven the authority to proceed #ith the hearin% of the cause until this fact is clearly established. 8n the case of Sy vs. alman, 1& #herein the defendant #as also a successful bidder in an auction sale, it #as li?e#ise held by this Court that in detainer cases the ai& of

o#nership Eis a &atter of defense and raises an issue of fact #hich should be deter&ined fro& the evidence at the trial.E .hat deter&ines *urisdiction are the alle%ations or aver&ents in the co&plaint and the relief as?ed for. 13 'oreover, even %rantin% that the char%e is true, fraud or deceit does not render a contract void ab initio, and can only be a %round for renderin% the contract voidable or annullable pursuant to Article 3(,) of the Ne# Civil Code, by a proper action in court. 1' $here is nothin% on record to sho# that the &ort%a%e has been annulled. Neither is it disclosed that steps #ere ta?en to nullify the sa&e. +ence, defendantsappellants7 clai& of o#nership on the basis of a voidable contract #hich has not been voided fails. 8t is clai&ed in the alternative by defendants-appellants that even if there #as no fraud, deceit or tric?ery, the chattel &ort%a%e #as still null and void ab initio because only personal properties can be sub*ect of a chattel &ort%a%e. $he rule about the status of buildin%s as i&&ovable property is stated in !ope" vs. #rosa$ Jr. and 2la<a $heatre 8nc., 1( cited in Associated %nsurance Surety Co.$ %nc. vs. %ya$ et al. 1) to the effect that C ... it is obvious that the inclusion of the buildin%, separate and distinct fro& the land, in the enu&eration of #hat &ay constitute real properties (art. 34, Ne# Civil Code! could only &ean one thin% C that a building is by itself an immovable property irrespective of #hether or not said structure and the land on #hich it is adhered to belon% to the sa&e o#ner. Certain deviations, ho#ever, have been allo#ed for various reasons. 8n the case of &anarang and &anarang vs. #filada, 17 this Court stated that Eit is undeniable that the parties to a contract &ay by a%ree&ent treat as personal property that #hich by nature #ould be real propertyE, citin% Standard #il Company of 'e( )ork vs. Jaramillo. 1* 8n the latter case, the &ort%a%or conveyed and transferred to the &ort%a%ee by #ay of &ort%a%e Ethe follo#in% described personal property.E 19 $he Epersonal propertyE consisted of leasehold ri%hts and a buildin%. A%ain, in the case of !una vs. *ncarnacion, &0 the sub*ect of the contract desi%nated as Chattel 'ort%a%e #as a house of &i:ed &aterials, and this Court hold therein that it #as a valid Chattel &ort%a%e because it #as so e+pressly designated and specifically that the property %iven as security Eis a house of &i:ed &aterials, #hich by its very nature is considered personal property.E 8n the later case of 'avarro vs. ,ineda, &1 this Court stated that C $he vie# that parties to a deed of chattel &ort%a%e &ay a%ree to consider a house as personal property for the purposes of said contract, Eis %ood only insofar as the contractin% parties are concerned. 8t is based, partly, upon the principle of estoppelE (/van%elista vs. Alto 9urety, No. >-333(,, 2( April 3,48!. 8n a case, a &ort%a%ed house built on a rented land #as held to be a personal property, not only because the deed of &ort%a%e considered it as such, but also because it did not for& part of the land (/van%elists vs. Abad, FCAGD (5 1.G. 2,3(!, for it is no# settled that an ob*ect placed on land by one #ho had only a te&porary ri%ht to the sa&e, such as the lessee or usufructuary, does not beco&e i&&obili<ed by attach&ent (Halde< vs. Central Alta%racia, 222 I.9. 48, cited in Aavao 9a#&ill Co., 8nc. vs. Castillo, et al., 53 2hil. 7),!. +ence, if a house belon%in% to a person stands on a rented land belon%in% to another person, it &ay be &ort%a%ed as a personal property as so stipulated in the docu&ent of &ort%a%e. (/van%elista vs. Abad, Supra.! %t s-ould be noted$ -o(ever t-at t-e principle is predicated on statements by t-e o(ner declaring -is -ouse to be a c-attel$ a conduct t-at may conceivably estop -im from subsequently claiming ot-er(ise . (>adera vs. C.N. +od%es, FCAG 8 1.G. 4(7 !- && 8n the contract no# before Is, the house on rented land is not only e:pressly desi%nated as Chattel 'ort%a%eD it specifically provides that Ethe &ort%a%or ... voluntarily C/A/9, 9/>>9 and $RAN90/R9 by (ay of C-attel &ortgage &3 the property to%ether #ith its leasehold ri%hts over the lot on #hich it is constructed and participation ...E &' Althou%h there is no specific state&ent referrin% to the sub*ect house as personal property, yet by cedin%, sellin% or transferrin% a property by (ay of c-attel mortgage

defendants-appellants could only have &eant to convey the house as chattel, or at least, intended to treat the sa&e as such, so that they should not no# be allo#ed to &a?e an inconsistent stand by clai&in% other#ise. 'oreover, the sub*ect house stood on a rented lot to #hich defendats-appellants &erely had a te&porary ri%ht as lessee, and althou%h this can not in itself alone deter&ine the status of the property, it does so #hen co&bined #ith other factors to sustain the interpretation that the parties, particularly the &ort%a%ors, intended to treat the house as personalty. 0inally unli?e in the 8ya cases, !ope" vs. #rosa$ Jr. and ,la"a .-eatre$ %nc. &( and !eung )ee vs. /. !. Strong &ac-inery and 0illiamson , &) #herein t-ird persons assailed the validity of the chattel &ort%a%e, &7 it is the defendants-appellants the&selves, as debtors-&ort%a%ors, #ho are attac?in% the validity of the chattel &ort%a%e in this case. $he doctrine of estoppel therefore applies to the herein defendants-appellants, havin% treated the sub*ect house as personalty. (b! $urnin% to the "uestion of possession and rentals of the pre&ises in "uestion. $he Court of 0irst 8nstance noted in its decision that nearly a year after the foreclosure sale the &ort%a%ed house had been de&olished on 3 and 34 6anuary 3,47 by virtue of a decision obtained by the lessor of the land on #hich the house stood. 0or this reason, the said court li&ited itself to sentencin% the erst#hile &ort%a%ors to pay plaintiffs a &onthly rent of 22)).)) fro& 27 'arch 3,45 (#hen the chattel &ort%a%e #as foreclosed and the house sold! until 3 6anuary 3,47 (#hen it #as torn do#n by the 9heriff!, plus 2()).)) attorney7s fees. Appellants &ort%a%ors "uestion this a#ard, clai&in% that they #ere entitled to re&ain in possession #ithout any obli%ation to pay rent durin% the one year rede&ption period after the foreclosure sale, i.e., until 27 'arch 3,47. 1n this issue, .e &ust rule for the appellants. Chattel &ort%a%es are covered and re%ulated by the Chattel 'ort%a%e >a#, Act No. 34)8. &* 9ection 3 of this Act allo#s the &ort%a%ee to have the property &ort%a%ed sold at public auction throu%h a public officer in al&ost the sa&e &anner as that allo#ed by Act No. (3(4, as a&ended by Act No. 338, provided that the re"uire&ents of the la# relative to notice and re%istration are co&plied #ith. &9 8n the instant case, the parties specifically stipulated that Ethe chattel &ort%a%e #ill be enforceable in accordance (it- t-e provisions of Special Act 'o. 1213 ... .E 30 (/&phasis supplied!. 9ection 5 of the Act referred to 31 provides that the debtor-&ort%a%or (defendants-appellants herein! &ay, at any ti&e #ithin one year fro& and after the date of the auction sale, redee& the property sold at the e:tra *udicial foreclosure sale. 9ection 7 of the sa&e Act 3& allo#s the purchaser of the property to obtain fro& the court the possession durin% the period of rede&ption- but the sa&e provision e:pressly re"uires the filin% of a petition #ith the proper Court of 0irst 8nstance and the furnishin% of a bond. 8t is only upon filin% of the proper &otion and the approval of the correspondin% bond that the order for a #rit of possession issues as a &atter of course. No discretion is left to the court. 33 8n the absence of such a co&pliance, as in the instant case, the purchaser can not clai& possession durin% the period of rede&ption as a &atter of ri%ht. 8n such a case, the %overnin% provision is 9ection ( , Rule (,, of the Revised Rules of Court 3' (-ic- also applies to properties purc-ased in e+tra4udicial foreclosure proceedings. 3( Construin% the said section, this Court stated in the aforestated case of 5eyes vs. 6amada. 8n other #ords, before the e:piration of the 3-year period #ithin #hich the *ud%&entdebtor or &ort%a%or &ay redee& the property, the purchaser thereof is not entitled, as a &atter of ri%ht, to possession of the sa&e. $hus, #hile it is true that the Rules of Court allo# the purchaser to receive the rentals if the purchased property is occupied by tenants, he is, nevertheless, accountable to the *ud%&ent-debtor or mortgagor as t-e case may be, for the a&ount so received and the sa&e #ill be duly credited a%ainst the rede&ption price #hen the said debtor or &ort%a%or effects the rede&ption. ifferently stated$ t-e rentals receivable from tenants$ alt-oug- t-ey may be collected by t-e purc-aser during t-e redemption period$ do not belong to t-e latter but still pertain to t-e debtor of mortgagor. $he rationale for the Rule, it see&s, is to secure for the benefit of

the debtor or &ort%a%or, the pay&ent of the rede&ption a&ount and the conse"uent return to hi& of his properties sold at public auction. (/&phasis supplied! $he +a&ada case reiterates the previous rulin% in C-an vs. *spe. 3) 9ince the defendants-appellants #ere occupyin% the house at the ti&e of the auction sale, they are entitled to re&ain in possession durin% the period of rede&ption or #ithin one year fro& and after 27 'arch 3,45, the date of the auction sale, and to collect the rents or profits durin% the said period. 8t #ill be noted further that in the case at bar the period of rede&ption had not yet e:pired #hen action #as instituted in the court of ori%in, and that plaintiffs-appellees did not choose to ta?e possession under 9ection 7, Act No. (3(4, as a&ended, #hich is the la# selected by the parties to %overn the e:tra*udicial foreclosure of the chattel &ort%a%e. Neither #as there an alle%ation to that effect. 9ince plaintiffsappellees7 ri%ht to possess #as not yet born at the filin% of the co&plaint, there could be no violation or breach thereof. .herefore, the ori%inal co&plaint stated no cause of action and #as pre&aturely filed. 0or this reason, the sa&e should be ordered dis&issed, even if there #as no assi%n&ent of error to that effect. $he 9upre&e Court is clothed #ith a&ple authority to revie# palpable errors not assi%ned as such if it finds that their consideration is necessary in arrivin% at a *ust decision of the cases. 37 8t follo#s that the court belo# erred in re"uirin% the &ort%a%ors to pay rents for the year follo#in% the foreclosure sale, as #ell as attorney7s fees. 01R $+/ 01R/G18NG R/A91N9, the decision appealed fro& is reversed and another one entered, dis&issin% the co&plaint. .ith costs a%ainst plaintiffs-appellees. Concepcion$ C.J.$ i"on$ &akalintal$ 7aldivar$ Castro$ /ernando$ .ee-ankee$ Barredo$ 8illamor and &akasiar$ JJ.$ concur.

G.R. No. L-'1((( %+,- &7, 1977 INDUSTRIAL .INAN#! #OR/ORATION, petitioner, vs. #ASTOR TO"IAS, respondent. Santos S. Carlos for petitioner. Amado J. 9arcia for respondent.

MARTIN, J0 $his is a petition for revie# of the decision of the Court of Appeals
1 in CA-G.R. No. 4(,35, entitled E8ndustrial 0inance Corporation vs. Castor $obiasE, affir&in% that of the Court of 0irst 8nstance of 'anila #ith a sli%ht &odification. 1n 6une 35, 3,58, respondent Castor $obias bou%ht on install&ent one (3! Aod%e truc? fro& >eelin 'otors, 8nc. $o ans#er for his obli%ation he e:ecuted a pro&issory note in favor of the latter, for the su& of 22,.)7).28 payable in thirty-si: ((5! e"ual install&ents #ith interest at the 1 rate of 32B per annu& payable in the a&ounts and dates indicated in said pro&issory note. $o secure pay&ent of the

pro&issory note, respondent $obias e:ecuted in favor of >eelin 'otors, 8nc. a chattel &ort%a%e on the Aod%e truc?.

1n 6une 3,, 3,5,, >eelin 'otors, 8nc. indorsed the pro&issory note and assi%ned the chattel &ort%a%e to petitioner 8ndustrial 0inance Corporation. As a conse"uence respondent $obias paid si: (5! install&ents on the pro&issory note directly to the petitioner 8ndustrial 0inance Corporation the last of #hich #as &ade on 0ebruary 3,, 3,7). & 1n 'ay 3 , 3,7), the petitioner7s counsel #rote to respondent $obias the follo#in% letter::: ::: ::: Aear 'r. $obias'y client, the 8NAI9$R8A> 08NANC/ C1R21RA$81N, has referred to &e for appropriate le%al action your account #ith it (>C8-5,)! #hich is in arrears in the a&ount of 2 ,24 .54 and a balance of 224,2 ,.54 as of 'ay 35, 3,7). 8n vie# of your default in the pay&ent of your install&ents due pursuant to the 2ro&issory Note and Chattel 'ort%a%e you e:ecuted in favor of >eelin 'otors, 8nc. and assi%ned to 8ndustrial 0inance Corporation, de&and is- hereby &ade upon you to pay the a&ount of 224,2 ,.54 on or before 'ay 2 , 3,7) or to surrender #ithin the sa&e period the follo#in% described personality1ne (3! Init 3,5, 'otor Hehicle Aod%e A-5)) 00C 3,7 E.=E /n%ine No. C2C ))7 9erial No. 348,)7)7, other#ise, the correspondin% action #ill be filed a%ainst you plus da&a%es and attorney7s fees. 2lease consider this a final de&and. Hery truly yours, C.R. 9ANC+/J >A. 1008C/ 9GA. CA$A>8N1 R. 9ANC+/J. 3 At the ti&e the fore%oin% letter #as #ritten, respondent $obias #as in arrear in the pay&ent of &ore than t#o (2! install&ents. ' 1n 'ay 27, 3,7), respondent $obias #rote petitioner7s counsel the follo#in% letterAear 9ir$his is in response to your letter of de&and dated 'ay 3 , 3,7) as?in% &e to surrender Aod%e $ruc? #ith en%ine no. C2C- ))7 9erial No. 348,)7)7, . 8 a& no# voluntarily and #illin%ly surrenderin% said truc? due to the ff. reasons3. $hat said truc? has been #ith >eelin 'otors ever since the later part of 0ebruary #hen it &et an accident. 2. $hat there is too &uch delay in the repair of said truc? because until no# the truc? is not yet co&pletely finished.

(. $hat upon seein% said truc?, 8 a& not satisfied #ith the repair of the finished portions. 8 a& no# %ivin% full authority to your client 8ndustrial 0inance Corporation to %et said truc? at >eelin 'otors, 8nc. 8 a& hopin% that due to the ff. %ood reasons &y na&e #ill not be blac?listed in your credit division. Hery truly yours, Castor $obias ( Ipon learnin% that the truc? &et an accident, petitioner decided not to %et the truc? any&ore fro& >eelin 'otors, 8nc. 1n 0ebruary 35, 3,73, petitioner filed in the Court of 0irst 8nstance of 'anila an action a%ainst respondent $obias to recover the unpaid balance of the pro&issory note.- $he lo#er court dis&issed the co&plaint on the %round that E(8!nas&uch as the defendant voluntarily and #illin%ly surrendered the truc? and %ave the 8ndustrial 0inance Corporation full authority to %et said truc? fro& >eelin 'otors, 8nc. (/:hibit 2! pursuant to the de&and to surrender (/:hibit =! the defendant co&plied #ith the de&ands of the plaintiff. ) 1n appeal, the Court of Appeals affir&ed the decision of the lo#er court dis&issin% the co&plaint of petitioner 8ndustrial 0inance Corporation but &odifyin% the sa&e by orderin% respondent $obias to pay the cost of repairs of the da&a%ed truc? in the a&ount of 24,(,5.78 plus interest. $he &ain thrust of the petitioner7s ar%u&ent is that the respondent Court of Appeals erred in affir&in% the dis&issal of the co&plaint of the petitioner in the lo#er court by not considerin% his ri%ht as an unpaid vendor of the truc? in "uestion under Art. 3 8 of the Ne# Civil Code. 7 2etitioner clai&s that under Art. 3 8 of the Ne# Civil Code, an unpaid vendor &ay choose any of the re&edies provided therein and that as an unpaid vendor, it has chosen to e:act fulfill&ent of the obli%ation for failure of the vendee to pay. Respondent $obias, ho#ever, clai&s that petitioner is estopped to insist on its clai& on the balance of the pro&issory note #hen it de&anded the return or surrender of the truc? in its letter of 'ay 3 , 3,7), to #hich de&and, respondent acceded in his letter dated 'ay 27, 3,7). $he clai& of respondent cannot be sustained. Art. 3 8 is clear that Eshould the vendee or purchaser of a personal property be in default in the pay&ent of t#o or &ore of the a%reed install&ents, the vendor or seller has the option to either e:act fulfill&ent by the purchaser of -the obli%ation, or to cancel the sale, or to foreclose the &ort%a%e on the purchased personal property, if one #as constituted. * 9ince the case involves the sale of personal property on install&ents Art. 3 8 of the Civil Code should apply. $he re&edies provided for in Art. 3 8 are considered alternative, not cu&ulative 9 such that the e:ercise of one #ould bar the e:ercise by the others. 10 +ere, petitioner has not cancelled the sale, nor has it e:ercised the re&edy of foreclosure. 0oreclosure, *udicial or e:tra-*udicial, presupposes so&ethin% &ore than a &ere de&and to surrender possession of the ob*ect of the &ort%a%e. 11 9ince the petitioner has not availed itself of the re&edy of cancellin% the sale of the truc? in "uestion or of foreclosin% the chattel &ort%a%e on said truc?, petitioner is still free to avail of the re&edy of e:actin% fulfill&ent 7 of the obli%ation of respondent $obias, the vendee of the truc? in "uestion. 8n 5adio(ealt- %nc. vs. !avin, 1& the facts of #hich are si&ilar to the 7present case, the issue #as E#hether the plaintiff is precluded to press for collection of an account secured by a chattel &ort%a%ee after it shall have infor&ed the defendants of its intention to foreclose said &ort%a%e, and the voluntary acceptance of such step (foreclosure! by defendant &ort%a%or,E the 9upre&e Court ruled in favor of the plaintiff &ort%a%ee. 9aid the Court-

$he contract bein% a sale of &achinery payable in install&ents, the applicable provision of la# is Article 3 8 of the Civil Code, #hich %ives the vendor the option to e:ercise any one of the alternative re&edies therein &entioned- e:act fulfill&ent of the obli%ation, cancel the sale, or foreclose the chattel &ort%a%e. =ut the vendor- &ort%a%or in the present case desisted, on its o#n initiative, fro& consu&&atin% the auction sale, #ithout %ainin% any advanta%e or benefit, and #ithout causin% any disadvanta%e, or har& to the vendees-&ort%a%ees. $he least that could be said is that such desistance of the plaintiff fro& proceedin% #ith auction sale #as a ti&ely disavo#al that cancelled and rendered useless its previous choice to forecloseD its acts, bein% e:tra-*udicial, brou%ht no trouble upon any court, and #ere har&less to the defendants. 0or this reason, the plaintiff can not be considered as havin% Ee:ercisedE (the Code uses the #ord Ee:erciseE! the re&edy of foreclosure because of its inco&plete i&ple&entation, and, therefore, the plaintiff is not barred fro& suin% on the unpaid account. 8n effect this rulin% ans#ers the issue of estoppel raised by respondent $obias. =esides, to hold the petitioner in estoppel, it &ust be sho#n that #hen it %ave the respondent the choice of either payin% the balance of the purchase price or of surrendin% the truc?, it had already ?no#led%e of the accident and the conse"uent da&a%e to the truc?. 8n the present case petitioner clai&s it had no ?no#led%e of the accident 13 #hen it %ave the respondent the choice of either payin% the balance of the pro&issory note or of surrenderin% the truc?. 8t is hard to believe that petitioner #ould &a?e such offer to respondent either to pay the balance on the pro&issory, note or to surrender the truc? in "uestion if it ?ne# that the truc? has had an accident. $he &ore plausible thin% it #ould have as?ed the respondent is to as? for the balance on the pro&issory note. =esides the alle%ation of petitioner that it had no ?no#led%e of the accident is a ne%ative alle%ation and needs no evidence to support it, not bein% an essential part of the state&ent of the ri%ht on #hich the cause of action is founded.1' 8t is therefore the respondent $obias #ho has the burden of disprovin% the clai& of petitioner that he has no ?no#led%e of the accident #hen it &ade the offer to respondent either to pay the balance on the pro&issory note or to surrender the truc?. Respondent failed in this. 8t is clai&ed by respondent $obias that he has surrendered the truc? to petitioner in his letter dated 'ay 27, 3,7). =ut the alle%ed surrender #as ineffectual as far as the petitioner is concerned because petitioner could not ta?e possession of the truc? in "uestion as it #as in the custody of >eelin 'otors, 8nc., #hich had a &echanic7s lien over it. /ven respondent $obias cannot e:pect petitioner to accept the ter& of surrender because aside fro& the fact that the truc? bein% surrendered &et an accident petitioner #as not satisfied #ith the repair of the finished portion of the truc? in "uestion. 2etitioner therefore #as *ustified refusin% to accept such surrender and in brin%in% suit to recover the balance of the purchase price. 8N H8/. 10 $+/ 01R/G18NG, the *ud%&ent of the respondent Court of Appeals and of the lo#er court are hereby set aside and a ne# one rendered orderin% respondent $obias to pay petitioner the balance of the purchase price of the truc? in "uestion in the a&ount of 227,23).77 plus le%al rate of interest fro& the ti&e of the filin% of the co&plaint. Costs a%ainst the respondent.

FIRST DIVISION [G.R. No. L-30583. October 23, 1982.] E TRO!IO "#$#S, %R., Petitioner, &. L NET# 'OTOR (O'!#N$ )*+ ,ONOR#-LE % #N O. RE$ES, !re./+/*0 %1+0e o2 t3e (o1rt o2 F/r.t I*.t)*ce o2 ')*/4), -r)*c3 555I, Respondents. !)*t)4eo* ". S)4ce+o 2or Petitioner.

Le)*+ro -. Fer*)*+e6 2or Respondents. S$NO!SIS Petitioner purchased on installment basis a motor vehicle from Escao, a dealer of respondent Luneta Motor Company. After the initial payment, petitioner simultaneously executed in favor of respondent company a promissory note for the balance of the total selling price and a chattel mortgage on the sub ect property to secure its payment. !hen, after a fe" monthly installment, petitioner defaulted in its payments, respondent company extra udicially foreclosed the chattel mortgage and subse#uently bought the property at public auction. $he total purchase price not having been reali%ed from the foreclosure sale, respondent further filed a civil suit to recover the balance. &pon motion of petitioner, the City Court dismissed the case on the ground that the former is no longer liable fore the deficiency udgment since the chattel mortgage had been foreclosed, "ith respondent company as the highest bidder. 'n appeal, ho"ever, respondent Court of (irst Court of origin for further proceedings. )ence, this petitioner*s only an ordinary loan removed from the coverage of Article +,-, of the .e" Civil Code, since respondent company is merely a financing company distinct from Escao Enterprises from "here petitioner bought the vehicle. $he /upreme Court held that, as borne by the records, there "as a principal0agent relationship bet"een Escao Enterprises and respondent company, and the transaction entered into by respondent or its agent and petitioner is one of sale of personal property on installment1 and that conse#uently, pursuant to Art. +,-, of the .e" Civil Code and prevailing urisprudence , the vendor, having availed himself of the right to foreclose the mortgage, is prohibited from bringing an action against the purchaser for the unpaid balance of the total purchase price. Petitioner grandted. S$LL#- S +. C232L LA!1 '4L25A$2'./ A.6 C'.$7AC$ '( A5E.C81 P72.C2PAL0A5E.$ 7ELA$2'./)2P P7E/E.$ 2. CA/E A$ 4A7. 9 $he Escao Enterprise of Cagayan de 'ro City "as an agent to Luneta Motor Company. A very significant evidence "hich proves the nature of the relationship bet"een Luneta Motor Company and Escao Enterprises is Annex :A: of the petitioner*s 'PP'/2$2'. $' &75E.$ M'$2'. ('7 7EC'./26E7A$2'.. Annex :A: is a certification from the cashier of Escao Enterprises on the monthly installments paid by Mr. Eutropio ;ayas, <r. 2n the certification, the promissory note in favor of Luneta Motor Company "as specifically mentioned. $here "as only one promissory note executed by Eutropio ;ayas, <r. in connection "ith the purchase of the motor vehicle. $he promisory note mentioned in the certification refers to the promissory note executed by Eutropio ;ayas, <r. in favor of respondent Luneta Motor Company. Escao Enterprises, a dealer of respondent Luneta Motor Company, "as merely a collecting0agent as far as the purchase of the sub ect motor vehicle "as concerned. $he principal and agent relationship is clear. =. 26.1 26.1 C'.$7AC$ '( /ALE1 /ALE '( PE7/'.AL P7'PE7$8 '. 2./$ALLME.$1

A CA/E '(. 9 Even assuming that the :distinct and independent entity: theory of the private respondent is valid, the nature of the transaction as a sale of personal property on installment basis remains. !hen, therefore, Escao Enterprises, assigned its rights vis0a vis the sale to respondent Luneta Motor Company, the nature of the transaction involving Escao Enterprises and Eutropio ;ayas, <r. did not change at all. As assignee, respondent Luneta Motor Company had no better rights than assignor Escao Enterprises under the same transaction. $he transaction "ould still be a sale of personal property on installment covered by Article +,-, of the .e" Civil Code. $o rule other"ise "ould pave the "ay for subverting the policy underlying Article +,-, of the .e" Civil Code, on the foreclosure of chattel mortgages over personal property sold on installment basis. >/ee Cru% v. (ilipinas 2nvestment ? (inance Corporation, =@ /C7A AB+C. DE(ISION G TIERRE", %R., J.7 Eutropio ;ayas, <r., filed this petition for revie" by certiorari to secure a reversal of the respondent court*s orders "hich remanded Civil Case .o. A,@-+ for further proceedings instead of affirming the city court*s order of dismissal. $he petitioner Eutropio ;ayas, <r. purchased on installment basis a motor vehicle described as '.E >+C &.2$ ('76 $)AME/ (7E25)$E7 !DP&< 4'68 "ith Engine .o. ,EEE0+=AA@and Chassis .o. ,EEE0+=AA@- from Mr. 7o#ue Escao of the Escao Enterprises in Cagayan de 'ro City, dealer of respondent Luneta Motor Company, under the follo"ing terms and conditionsF
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/elling price A,GEE.EE (inancing charge +,,=H.-= $otal /elling Price -,B=H.-= Payable on 6elivery +,EEH.-= Payable in =, months at += I interest per annum A,B=E.EE $he motor vehicle "as delivered to the petitioner "ho +C paid the initial payment in the amount of P+,EEH.-=, and =C executed a promissory note in the amount of PA,B=E.EE, the balance of the total selling price, in favor of respondent Luneta Motor Company. $he promissory note stated the amounts and dates of payment of t"enty0six installments covering the PA,B=E.EE debt. /imultaneously "ith the execution of the promissory note and to secure its payment, the petitioner executed a chattel mortgage on the sub ect motor vehicle in favor of the Respondent. After paying a total amount of P@,+,-.EE, the petitioner "as unable to pay further monthly

installments prompting the respondent Luneta Motor Company to extra udicially foreclose the chattel mortgage >Annex :A: to Ans"er, 'riginal 7ecord, p. +E, supraC. $he motor vehicle "as sold at public auction "ith the respondent Luneta Motor Company represented by Atty. Leandro 4. (ernande% as the highest bidder in the amount of PG,EEE.EE >Annex :4: to Ans"er, 'riginal 7ecord, p. ++, supraC. /ince the payments made by petitioner Eutropio ;ayas, <r. plus the PG,EEE.EE, reali%ed from the foreclosure of the chattel mortgage could not cover the total amount of the promissory note executed by the petitioner in favor of the respondent Luneta Motor Company, the latter filed Civil Case .o. +HG=H@ "ith the City Court of Manila for the recovery of the balance of P+,GG+.A, plus interests. Luneta Motor Company alleged in its complaint that defendant0Eutropio ;ayas, <r. executed a promissory note in the amount of PA,B=E.EE in its favor1 that out of the PA,B=E.EE, Eutropio ;ayas, <r. had paid only PH,@H-.=H plus interest up to the date of the sale at public auction of the motor vehicle1 that the balance of P+,GG+.A, plus interest of +=I thereon from that date had already become due and payable but despite repeated demands to pay the same, Eutropio ;ayas, <r., refused and failed to pay. 2n his ans"er "ith affirmative defenses and counterclaim, Eutropio ;ayas, <r. admitted having executed the promissory note for the monthly payments, on a (ord $hames vehicle bearing Engine .o. ,EEE0+=AA@- "hich he purchased from the Luneta Motor Company but he denied his alleged outstanding liability of P+,GG+.A, plus interest thereon.: . . id obligation if there "as any, had already been discharged either by payment or by sale in public auction of the said motor vehicle as evidenced by a .otice of /ale marJed as Annex :A: and Certificate of /ale marJed as Annex :4: 1 >Ans"er, p. A, 'riginal 7ecordC. )e alleged as affirmative defenses, among othersF +C that the plaintiff has no cause of action against him1 and =C that pursuant to Article +,-, of the .e" Civil Code and the case of Pacific Commercial Co. v. 6e La 7ama, >A= Phil. @-EC his obligation per the promissory note "as extinguished by the sale at public auction of the motor vehicle, the sub ect of the chattel mortgage "hich "as executed by him in favor of the plaintiff as security for the payment of said promissory note. >Ans"er, p. -, 'riginal 7ecordC 2n its 7eply, Luneta Motor Company denied the applicability of Article +,-, of the Civil Code.: . . e simple reason that the contract involved bet"een the parties is not one for a sale on installment: >7eply, p. +@, 'riginal 7ecordC After several postponements, the case "as set for hearing. As a result of the non0appearance of the plaintiff and its counsel on the date set for hearing, defendant ;ayas, <r. moved to have the case dismissed for lacJ of interest on the part of the plaintiff. )e also asJed the court to allo" him to discuss the merits of his affirmative defense as if a motion to dismiss had been filed. $he issue raised and argued by the defendant "as "hether or not a deficiency amount after the motor vehicle, sub ect of the chattel mortgage, has been sold at public auction could still be recovered. ;ayas cited the case of 7uperto Cru% v. (ilipinas 2nvestment >=@ /C7A AB+C. Acting on the motion, the city court issued an 'rderF
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:'n Petition of counsel for the defendant for the dismissal of this case on the found that the defendant is no longer liable for the deficiency udgment inasmuch as the chattel mortgage has

been foreclosed, "ith the plaintiff as the highest bidder thereof, citing the case of 7uperto 5. Cru% v. (ilipinas 2nvestment decided on May =A, +BH-, 5.7. .o. L0=,AA= in connection "ith Article +,-, of the Civil Code, and finding the same "ell taJen. :Let this case be dismissed "ithout pronouncement as to costs.:
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Luneta Motor Company filed an :&rgent Motion for 7econsideration: reiterating its stand that Article +,-, of the .e" Civil Code on sale of personal property by installment "as not applicable and that the contract involving the parties "as a mere case of an ordinary loan secured by chattel mortgage. According to the plaintiff, the defendant executed the promissory note and chattel mortgage to secure the plaintiff*s interest for having financed the purchase of the motor vehicle by the defendant from the Escao Enterprises of Cagayan de 'ro City, an entity entirely different and distinct from the plaintiff corporation >p. @@, 'riginal 7ecordC. $he court denied the motion for reconsideration for lacJ of merit. Luneta Motor Company appealed the case to the Court of (irst 2nstance of Manila "here it "as docJeted as Civil Case .o. A,@-+. After various incidents, the respondent court issued an order "hich, in part, readsF
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:$his is an appeal taJen by plaintiff from the order of the City Court of Manila, dismissing its complaint on the ground that the defendant is no longer liable for the deficiency udgment inasmuch as the chattel mortgage has been foreclosed, "ith the plaintiff as the highest bidder thereof, in line "ith the ruling of the /upreme Court in the case of 7uperto 5. Cru% v. (ilipinas 2nvestment >5.7. .o. L0=,AA=C in connection "ith Article +,-, of the Civil Code. x x x

:After going over the pleadings in this case, more particularly the complaint and the ans"er to the complaint filed "ith the City Court of Manila, this Court is of the impression that the case at bar may not be decided merely, as the City Court had done, on the #uestion of la" since the presentation of evidence is necessary to ad udicate the #uestions involved.*!)E7E('7E, this case is hereby remanded to the court of origin for further proceedings. >pp. -=0-@, 'riginal 7ecordC: )ence, this petition. Petitioner Eutropio ;ayas, <r. no" maintainsF
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:$hat 7espondent Court of (irst 2nstance erredF

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+. 2. )'L62.5 $)A$ $)E K&E/$2'. '( LA! CA..'$ 4E 6EC26E6 /2.CE P7E/E.$A$2'. '( E326E.CE 2/ .ECE//A78 9 7E5A762.5 $)E K&E/$2'. '( 7EC'3E78 '( $)E 6E(2C2E.C8 AM'&.$ 2. A C)A$$EL M'7$5A5E A($E7 /ELL2.5 2$ 2. A P&4L2C A&C$2'.1

=. 2. '76E72.5 $)E 7EMA.6 '( $)E CA/E $' $)E C2$8 C'&7$ ('7 (&7$)E7 P7'CEE62.5/ $ALE. 48 $)E 7E/P'.6E.$ (7'M $)E C2$8 C'&7$ $' $)E C'&7$ '( (27/$ 2./$A.CE, 47A.C) MM2, MA.2LA1 and @. 2. .'$ 62/M2//2.5 $)E APPEAL $ALE. 48 $)E P723A$E 7E/P'.6E.$ (7'M $)E C2$8 C'&7$ $' $)E C'&7$ '( (27/$ 2./$A.CE.:
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$he main defense of respondent Luneta Motor Company is that Escao Enterprises, Cagayan de 'ro City from "hich petitioner Eutropio ;ayas, <r. purchased the sub ect motor vehicle "as a distinct and different entity1 that the role of Luneta Motor Company in the said transaction "as only to finance the purchase price of the motor vehicle1 and that in order to protect its interest as regards the promissory note executed in its favor, a chattel mortgage covering the same motor vehicle "as also executed by petitioner Eutropio ;ayas, <r. 2n short, respondent Luneta Motor Company maintains that the contract bet"een the company and the petitioner "as only an ordinary loan removed from the coverage of Article +,-, of the .e" Civil Code.
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$he respondent*s arguments have no merit. $he Escao Enterprises of Cagayan de 'ro City "as an agent of Luneta Motor Company. A very significant evidence "hich proves the nature of the relationship bet"een Luneta Motor Company and Escao Enterprises is Annex :A. of the petitioner*s 'PP'/2$2'. $' &75E.$ M'$2'. ('7 7EC'./26E7A$2'.. >'riginal 7ecord, p. @HC Annex :A: is a certification from the cashier of Escao Enterprises on the monthly installments paid by Mr. Eutropio ;ayas, <r. 2n the certification, the promissory note in favor of Luneta Motor Company "as specifically mentioned. $here "as only one promissory note executed by Eutropio ;ayas, <r. in connection "ith the purchase of the motor vehicle. $he promissory note mentioned in the certification refers to the promissory note executed by Eutropio ;ayas, <r. in favor of respondent Luneta Motor Company. $husF
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:CE7$2(2CA$2'. :$his is to certify that Mr. E&$7'P2' ;A8A/, <7. has paid from us the follo"ing, of his ('76 $)AME/ 4EA72.5 Engine .o. ,EEE0+=AA@-, promissory note dated 'ctober H, +BHH. 3i%F
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E/CAN' '.7. 6A$E 7ECE23E6 AM'&.$ .&M4E7 EBBB- 'ctober G, +BHH P+,EEE.EE +EEH, 'ctober =E, +BHH =,=.EE +E+-- .ovember -, +BHH +HH.EE

+E@GG 6ecember +=, +BHH ,EE.EE LMC C.7. O,EE@+ <anuary +B, +BHA =AE.EE +EG@H (ebruary +, +BHA HE.EE +EH,G (ebruary =A, +BHA +EE.EE +EAE, March +@, +BHA +EE.EE +EA,B March ==, +BHA HE.EE +E+@= March @E, +BHA +EE.EE +EA-- April -, +BHA +EE.EE +EABG April ++, +BHA +EE.EE +E-=A April +-, +BHA +EE.EE +EB@, May +E, +BHA +EE.EE +EBB+ May =H, +BHA +EE.EE +++EG <une +B, +BHA +GE.EE PPPPPPPP P@,+,-.EE E/CAN' E.$E7P72/E/ >/56.C EMEL2$A ). 4AC&L2' Cashier: Escao Enterprises, a dealer of respondent Luneta Motor Company, "as merely a collecting0 agent as far as the purchase of the sub ect motor vehicle "as concerned. $he principal and agent relationship is clear. 4ut even assuming that the :distinct and independent entity: theory of the private respondent is valid, the nature of the transaction as a sale of personal property on installment basis remains. !hen, therefore, Escao Enterprises, assigned its rights vis0a0vis the sale to respondent Luneta Motor Company, the nature of the transaction involving Escao Enterprises and Eutropio ;ayas, <r. did not change at all. As assignee, respondent Luneta Motor Company had no better rights than assignor Escao Enterprises under the same transaction. $he transaction "ould still be a

sale of personal property in installments covered by Article +,-, of the .e" Civil Code. $o rule other"ise "ould pave the "ay for subverting the policy underlying Article +,-, of the .e" Civil Code, on the foreclosure of chattel mortgages over personal property sold on installment basis. :A7$. +,-,. 2n a contract of sale of personal property the price of "hich is payable in installments, the vendor may exercise any of the follo"ing remediesF
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:>@C (oreclose the chattel ,mortgage on the thing sold, if one has been constituted, should the vendee*s failure to pay cover t"o or more installments. 2n 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, x x x

:. . . 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. And the reason for this doctrine "as aptly stated in the case of 4achrach Motor Co. v. Millan, supra thusF
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:Q&ndoubtedly the principal ob ect of the above amendment "as to remedy the abuses committed in connection "ith the foreclosure of chattel mortgages. $his amendment prevents mortgagees from sei%ing the mortgaged property, buying it at foreclosure sale for a lo" price and then bringing suit against the mortgagor for a deficiency udgment. $he almost invariable result of this procedure "as that the mortgagor found himself minus the property and still o"ing practically the full amount of his original indebtedness. &nder this amendment the vendor of personal property, the purchase price of "hich is payable in installments, has the right to cancel the sale or foreclose the mortgage if one has been given on the property. !hichever right the vendor elects he need not return to the purchaser the amount of the installments already paid, Qif there be an agreement to that effect*. (urthermore, 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.*: >Cru% v. (ilipinas 2nvestment ? (inance Corporation =@ /C7A AB+C 'ur findings and conclusions are borne out by the records available to the respondent court. $here "as no necessity for the remand of records to the city court for the presentation of evidence on the issue raised in the case. !)E7E('7E, the instant petition is hereby granted. $he orders remanding the case to the court of origin and denying the motion for reconsideration of the Court of (irst 2nstance of Manila, 4ranch MM2 issued in Civil Case .o. A,@-+ are annulled. Accordingly, the Court of (irst 2nstance of Manila, 4ranch MM2 is directed to dismiss the appeal in Civil Case .o. A,@-+. $he 'rder of the City Court of Manila dismissing the complaint in Civil Case .o. +HG=H@ is

affirmed. /' '76E7E6. G.R. No. L-39*0) %an+ar- &7, 19*3 LUIS RIDAD an LOURD!S RIDAD, plaintiffs-appellees, vs. .ILI/INAS INV!STM!NT an .INAN#! #OR/ORATION, %OS! D. S!"ASTIAN an %OS! SAN AGUSTIN, 2n 324 5apa52t- a4 S3er266, defendants-appellants. #smundo 8ictoriano for plaintiffs-appellees. 0il-elmina 8. Joven for defendant-appellants.

D! #ASTRO, J: Appeal fro& the decision of the Court of 0irst 8nstance of Ri<al, =ranch 8, in Civil Case No. ,3 ) for annul&ent of contract, ori%inally filed #ith the Court of Appeals but #as subse"uently certified to this Court pursuant to 9ection ( of Rule 4) of the Rules of Court, there bein% no issue of fact involved in this appeal. $he &aterials facts of the case appearin% on record &ay be stated as follo#s- 1n April 3 , 3,5 , plaintiffs purchased fro& the 9upre&e 9ales arid Aevelop&ent Corporation t#o (2! brand ne# 0ord Consul 9edans co&plete #ith accessories, for 225,887 payable in 2 &onthly install&ents. $o secure pay&ent thereof, plaintiffs e:ecuted on the sa&e date a pro&issory note coverin% the purchase price and a deed of chattel &ort%a%e not only on the t#o vehicles purchased but also on another car (Chevrolet! and plaintiffs7 franchise or certificate of public convenience %ranted by the defunct 2ublic 9ervice Co&&ission for the operation of a ta:i fleet. $hen, #ith the confor&ity of the plaintiffs, the vendor assi%ned its ri%hts, title and interest to the above-&entioned pro&issory note and chattel &ort%a%e to defendant 0ilipinas 8nvest&ent and 0inance Corporation. Aue to the failure of the plaintiffs to pay their &onthly install&ents as per pro&issory note, the defendant corporation foreclosed the chattel &ort%a%e e:tra-*udicially, and at the public auction sale of the t#o 0ord Consul cars, of #hich the plaintiffs #ere not notified, the defendant corporation #as the hi%hest bidder and purchaser. Another auction sale #as held on Nove&ber 35, 3,54, involvin% the re&ainin% properties sub*ect of the deed of chattel &ort%a%e since plaintiffs7 obli%ation #as not fully satisfied by the sale of the aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to operate five units of ta:icab service #as sold for 28,))) to the hi%hest bidder, herein defendant corporation, #hich subse"uently sold and conveyed the sa&e to herein

defendant 6ose A. 9ebastian, #ho then filed #ith the 2ublic 9ervice Co&&ission an application for approval of said sale in his favor. 1n 0ebruary 23, 3,55, plaintiffs filed an action for annul&ent of contract before the Court of 0irst 8nstance of Ri<al, =ranch 8, #ith 0ilipinas 8nvest&ent and 0inance Corporation, 6ose A. 9ebastian and 9heriff 6ose 9an A%ustin, as party-defendants. =y a%ree&ent of the parties, the case #as sub&itted for decision in the lo#er court on the basis of the docu&entary evidence adduced by the parties durin% the pre-trial conference. $hereafter, the lo#er court rendered *ud%&ent as follo#s8N H8/. 10 $+/ A=1H/ C1N98A/RA$81N9, this Court declares the chattel &ort%a%e, /:hibit ECE, to be null and void in so far as the ta:icab franchise and the used Chevrolet car of plaintiffs are concerned, and the sale at public auction conducted by the City 9heriff of 'anila concernin% said ta:icab franchise, to be of no le%al effect. 2:(p-;2.<=t $he certificate of sale issued by the City 9heriff of 'anila in favor of 0ilipinas 8nvest&ent and 0inance Corporation concernin% plaintiffs7 ta:icab franchise for 28,))) is accordin%ly cancelled and set aside, and the assi%n&ent thereof &ade by 0ilipinas 8nvest&ent in favor of defendant 6ose 9ebastian is declared void and of no le%al effect. (Record on Appeal, p. 328!. 0ro& the fore%oin% *ud%&ent, defendants appealed to the Court of Appeals #hich, as earlier stated, certified the appeal to this Court, appellants i&putin% to the lo#er court five alle%ed errors, as follo#s8 $+/ >1./R C1IR$ /RR/A 8N A/C>AR8NG $+/ C+A$$/> '1R$GAG/, /K+8=8$ ECE, NI>> ANA H18A. 88 $+/ >1./R C1IR$ /RR/A 8N +1>A8NG $+A$ $+/ 9A>/ A$ 2I=>8C AIC$81N C1NAIC$/A =L $+/ C8$L 9+/R800 10 'AN8>A C1NC/RN8NG $+/ $AK8CA= 0RANC+89/ 89 10 N1 >/GA> /00/C$. 888 $+/ >1./R C1IR$ /RR/A 8N 9/$$8NG A98A/ $+/ C/R$808CA$/ 10 9A>/ 899I/A =L $+/ C8$L 9+/R800 10 'AN8>A 8N 0AH1R 10 08>828NA9 8NH/9$'/N$ ANA 08NANC/ C1R21RA$81N C1H/R8NG 2>A8N$80097 $AK8CA= 0RANC+89/. 8H

$+/ >1./R C1IR$ /RR/A 8N A/C>AR8NG H18A ANA 10 N1 >/GA> /00/C$ $+/ A998GN'/N$ 10 $+/ $AK8CA= 0RANC+89/ 'AA/ =L 08>828NA9 8NH/9$'/N$ ANA 08NANC/ C1R21RA$81N 8N 0AH1R 10 A/0/NAAN$. H $+/ >1./R C1IR$ (sic! 8N N1$ A/C8A8NG $+/ CA9/ 8N 0AH1R 10 $+/ A/0/NAAN$9. Appellants7 =rief, pp. , @ 3)! 0ro& the afore"uoted assi%n&ent of errors, the decisive issue for consideration is the validity of the chattel &ort%a%e in so far as the franchise and the subse"uent sale thereof are concerned. $he resolution of said issue is un"uestionably %overned by the provisions of Article 3 8 of the Civil Code #hich statesArt. 3 8 . 8n a contract of sale of personal property the price of #hich is payable in install&ents, the vendor &ay e:ercise y of the follo#in% re&edies(3! /:act fulfill&ent of the obli%ation, should the vendee fail to payD (2! Cancel the sale, should the vendee7s failure to pay cover t#o or &ore install&entsD ((! 0oreclose the chattel &ort%a%e on the thin% sold, if one has been constituted, should the vendee7s failure to pay cover t#o or &ore install&ents. 8n this case, he shall have no further action a%ainst the purchaser to recover any unpaid balance of the price. Any a%ree&ent to the contrary shall be void. Inder the above-"uoted article of the Civil Code, the vendor of personal property the purchase price of #hich is payable in install&ents, has the ri%ht, should the vendee default in the pay&ent of t#o or &ore of the a%reed install&ents, to e:act fulfill&ent by the purchaser of the obli%ation, or to cancel the sale, or to foreclose the &ort%a%e on the purchased personal property, if one #as constituted. 1 .hichever ri%ht the vendor elects,
he cannot avail of the other, these re&edies bein% alternative, not cu&ulative. & 0urther&ore, if the vendor avails hi&self of the ri%ht to foreclose his &ort%a%e, the la# prohibits hi& fro& further brin%in% an action a%ainst the vendee for the purpose of recoverin% #hatever balance of the debt secured not satisfied by the foreclosure sale. 3 $he precise purpose of the la# is to prevent &ort%a%ees fro& sei<in% the &ort%a%ed property, buyin% it at foreclosure sale for a lo# price and then brin%in% suit a%ainst the &ort%a%or for a deficiency *ud%&ent, other#ise, the &ort%a%or-buyer #ould find hi&self #ithout the property and still o#in% practically the full a&ount of his ori%inal indebtedness. ' 8n the instant case, defendant corporation elected to foreclose its &ort%a%e upon default by the plaintiffs in the pay&ent of the a%reed install&ents. +avin% chosen to foreclose the chattel &ort%a%e, and bou%ht the purchased vehicles at the public auction as the hi%hest bidder, it sub&itted itself to the conse"uences

of the la# as specifically &entioned, by #hich it is dee&ed to have renounced any and all ri%hts #hich it &i%ht other#ise have under the pro&issory note and the chattel &ort%a%e as #ell as the pay&ent of the unpaid balance. Conse"uently, the lo#er court ri%htly declared the nullity of the chattel &ort%a%e in "uestion in so far as the ta:icab franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the rulin% in the case of !evy 6ermanos$ %nc. vs. ,acific Commercial Co.$ et al.$ 73 2hil. 487, the facts of #hich are si&ilar to those in the case at bar. $here, #e have the sa&e situation #herein the vendees offered as security for the pay&ent of the purchase price not only the &otor vehicles #hich #ere bou%ht on install&ent, but also a residential lot and a house of stron% &aterials. $his Court sustained the pronounce&ent &ade by the lo#er court on the nullity of the &ort%a%e in so far as it included the house and lot of the vendees, holdin% that under the la#, should the vendor choose to foreclose the &ort%a%e, he has to content hi&self #ith the proceeds of the sale at the public auction of the chattels #hich #ere sold on install&ent and &ort%a%ed to hi& and havin% chosen the re&edy of foreclosure, he cannot nor should he be allo#ed to insist on the sale of the house and lot of the vendees, for to do so #ould be e"uivalent to obtainin% a #rit of e:ecution a%ainst the& concernin% other properties #hich are separate and distinct fro& those #hich #ere sold on install&ent. $his #ould indeed be contrary to public policy and the very spirit and purpose of the la#, li&itin% the vendor7s ri%ht to foreclose the chattel &ort%a%e only on the thin% sold. 8n the case of Cru" v. /ilipinos %nvestment & /inance Corporation$ 2( 9CRA 7,3, this Court ruled that the vendor of personal property sold on the install&ent basis is precluded, after foreclosin% the chattel &ort%a%e on the thin% sold fro& havin% a recourse a%ainst the additional security put up by a third party to %uarantee the purchaser7s perfor&ance of his obli%ation on the theory that to sustain the sa&e #ould overloo? the fact that if the %uarantor should be co&pelled to pay the balance of the purchase price, said %uarantor #ill in turn be entitled to recover #hat he has paid fro& the debtor-vendee, and ulti&ately it #ill be the latter #ho #ill be &ade to bear the pay&ent of the of the balance of the price, despite the earlier foreclosure of the chattel &ort%a%e %iven by hi&, thereby indirectly subvertin% the protection %iven the latter. Conse"uently, the additional &ort%a%e #as ordered cancelled. 9aid rulin% #as reiterated in the case of ,ascual v. >niversal &otors Corporation$ 53 9CRA 323. 8f the vendor under such circu&stance is prohibited fro& havin% a recourse a%ainst the additional security for reasons therein stated, there is no %round #hy such vendor should not li?e#ise be precluded fro& further e:tra*udicially foreclosin% the additional security put up by the vendees the&selves, as in the instant case, it bein% tanta&ount to a further action ( that #ould violate Article 3 8 of the Civil Code, for then is actually no bet#een an additional security put up by the vendee hi&self and such security put up by a third party insofar as ho# the burden #ould ulti&ately fall on the vendee hi&self is concerned. Reliance on the rulin% in Sout-ern &otors$ inc. v. &oscoso$ 2 9CRA 358, that in sales on install&ents, #here the action instituted is for and the &ort%a%ed property is subse"uently attached and sold, the sales thereof does not a&ount to a foreclosure of the &ort%a%e, hence, the seller creditor is entitled to a deficiency *ud%&ent, does not for the stand of the appellants for that case is entirely different fro& the case at bar. 8n that case, the vendor has availed of the first re&edy provided by Article 3 8 of the Civil Code, i.e., to e:act fulfill&ent of the obli%ation #hereas in the present case, the re&edy availed of #as foreclosure of the chattel &ort%a%e. $he fore%oin% disposition renders superfluous a deter&ination of the other issue raised by the parties as to the validity of the auction sale, in so far as the franchise of plaintiffs is concerned, #hich sale had been ad&ittedly held #ithout any notice to the plaintiffs. 8N H8/. +/R/10, the *ud%&ent appealed fro& is hereby affir&ed, #ith costs a%ainst the appellants. 91 1RA/R/A.