G.R. No.
L-39806 January 27, 1983 sale of the aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to
LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D. SEBASTIAN and
JOSE SAN AGUSTIN, in his capacity as Sheriff, defendants-appellants.
Osmundo Victoriano for plaintiffs-appellees.
Wilhelmina V. Joven for defendant-appellants.
DE CASTRO, J:
Appeal from the decision of the Court of First Instance of Rizal, Branch I, in Civil Case
No. 9140 for annulment of contract, originally filed with the Court of Appeals but was
subsequently certified to this Court pursuant to Section 3 of Rule 50 of the Rules of
Court, there being no issue of fact involved in this appeal.
The materials facts of the case appearing on record may be stated as follows: On April
14, 1964, plaintiffs purchased from the Supreme Sales arid Development Corporation
two (2) brand new Ford Consul Sedans complete with accessories, for P26,887 payable
in 24 monthly installments. To secure payment thereof, plaintiffs executed on the same
date a promissory note covering the purchase price and a deed of chattel mortgage not
only on the two vehicles purchased but also on another car (Chevrolet) and plaintiffs'
franchise or certificate of public convenience granted by the defunct Public Service
Commission for the operation of a taxi fleet. Then, with the conformity of the plaintiffs, the
vendor assigned its rights, title and interest to the above-mentioned promissory note and
chattel mortgage to defendant Filipinas Investment and Finance Corporation.
Due to the failure of the plaintiffs to pay their monthly installments as per promissory
note, the defendant corporation foreclosed the chattel mortgage extra-judicially, and at
the public auction sale of the two Ford Consul cars, of which the plaintiffs were not
notified, the defendant corporation was the highest bidder and purchaser. Another
auction sale was held on November 16, 1965, involving the remaining properties subject
of the deed of chattel mortgage since plaintiffs' obligation was not fully satisfied by the
operate five units of taxicab service was sold for P8,000 to the highest bidder, herein
defendant corporation, which subsequently sold and conveyed the same to herein
defendant Jose D. Sebastian, who then filed with the Public Service Commission an
application for approval of said sale in his favor.
On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court
of First Instance of Rizal, Branch I, with Filipinas Investment and Finance Corporation,
Jose D. Sebastian and Sheriff Jose San Agustin, as party-defendants. By agreement of
the parties, the case was submitted for decision in the lower court on the basis of the
documentary evidence adduced by the parties during the pre-trial conference.
Thereafter, the lower court rendered judgment as follows:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court declares the
chattel mortgage, Exhibit "C", to be null and void in so far as the taxicab
franchise and the used Chevrolet car of plaintiffs are concerned, and the
sale at public auction conducted by the City Sheriff of Manila concerning
said taxicab franchise, to be of no legal effect. The certificate of sale
1äwphï1.ñët 
issued by the City Sheriff of Manila in favor of Filipinas Investment and
Finance Corporation concerning plaintiffs' taxicab franchise for P8,000 is
accordingly cancelled and set aside, and the assignment thereof made by
Filipinas Investment in favor of defendant Jose Sebastian is declared void
and of no legal effect. (Record on Appeal, p. 128).
From the foregoing judgment, defendants appealed to the Court of Appeals which, as
earlier stated, certified the appeal to this Court, appellants imputing to the lower court five
alleged errors, as follows:
I
THE LOWER COURT ERRED IN DECLARING THE CHATTEL
MORTGAGE, EXHIBIT "C", NULL AND VOID.
II
 THE LOWER COURT ERRED IN HOLDING THAT THE SALE AT
PUBLIC AUCTION CONDUCTED BY THE CITY SHERIFF OF MANILA
CONCERNING THE TAXICAB FRANCHISE IS OF NO LEGAL EFFECT.
III
THE LOWER COURT ERRED IN SETTING ASIDE THE CERTIFICATE
OF SALE ISSUED BY THE CITY SHERIFF OF MANILA IN FAVOR OF
FILIPINAS INVESTMENT AND FINANCE CORPORATION COVERING
PLAINTIFFS' TAXICAB FRANCHISE.
IV
THE LOWER COURT ERRED IN DECLARING VOID AND OF NO
LEGAL EFFECT THE ASSIGNMENT OF THE TAXICAB FRANCHISE
MADE BY FILIPINAS INVESTMENT AND FINANCE CORPORATION IN
FAVOR OF DEFENDANT.
V
THE LOWER COURT (sic) IN NOT DECIDING THE CASE IN FAVOR
OF THE DEFENDANTS. Appellants' Brief, pp. 9 & 10)
From the aforequoted assignment of errors, the decisive issue for consideration is the
validity of the chattel mortgage in so far as the franchise and the subsequent sale thereof
are concerned.
The resolution of said issue is unquestionably governed by the provisions of Article 1484
of the Civil Code which states:
Art. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise y 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.
Under the above-quoted article of the Civil Code, the vendor of personal property the
purchase price of which is payable in installments, has the right, should the vendee
default in the payment of two or more of the agreed installments, 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.   Whichever right the vendor elects,
1
he cannot avail of the other, these remedies being alternative, not
cumulative.   Furthermore, if the vendor avails himself of the right to foreclose his
2
mortgage, the law prohibits him from further bringing an action against the vendee for the
purpose of recovering whatever balance of the debt secured not satisfied by the
foreclosure sale.   The precise purpose of the law is to prevent mortgagees from seizing
3
the mortgaged property, buying it at foreclosure sale for a low price and then bringing
suit against the mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer
would find himself without the property and still owing practically the full amount of his
original indebtedness. 4
In the instant case, defendant corporation elected to foreclose its mortgage upon default
by the plaintiffs in the payment of the agreed installments. Having chosen to foreclose
the chattel mortgage, and bought the purchased vehicles at the public auction as the
highest bidder, it submitted itself to the consequences of the law as specifically
mentioned, by which it is deemed to have renounced any and all rights which it might
otherwise have under the promissory note and the chattel mortgage as well as the
payment of the unpaid balance.
Consequently, the lower court rightly declared the nullity of the chattel mortgage in
question in so far as the taxicab franchise and the used Chevrolet car of plaintiffs are
concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. vs.
Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar to those in the
case at bar. There, we have the same situation wherein the vendees offered as security
for the payment of the purchase price not only the motor vehicles which were bought on
installment, but also a residential lot and a house of strong materials. This Court Code, i.e., to exact fulfillment of the obligation whereas in the present case, the remedy
sustained the pronouncement made by the lower court on the nullity of the mortgage in availed of was foreclosure of the chattel mortgage.
so far as it included the house and lot of the vendees, holding that under the law, should
the vendor choose to foreclose the mortgage, he has to content himself with the The foregoing disposition renders superfluous a determination of the other issue raised
proceeds of the sale at the public auction of the chattels which were sold on installment by the parties as to the validity of the auction sale, in so far as the franchise of plaintiffs is
and mortgaged to him and having chosen the remedy of foreclosure, he cannot nor concerned, which sale had been admittedly held without any notice to the plaintiffs.
should he be allowed to insist on the sale of the house and lot of the vendees, for to do
so would be equivalent to obtaining a writ of execution against them concerning other IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs against
properties which are separate and distinct from those which were sold on installment. the appellants.
This would indeed be contrary to public policy and the very spirit and purpose of the law,
limiting the vendor's right to foreclose the chattel mortgage only on the thing sold.
SO ORDERED.
In the case of Cruz v. Filipinos Investment & Finance Corporation, 23 SCRA 791, this
G.R. No. 106418 July 11, 1996
Court ruled that the vendor of personal property sold on the installment basis is
precluded, after foreclosing the chattel mortgage on the thing sold from having a
recourse against the additional security put up by a third party to guarantee the DANIEL L. BORBON II AND FRANCISCO L. BORBON, petitioners,
purchaser's performance of his obligation on the theory that to sustain the same would vs.
overlook the fact that if the guarantor should be compelled to pay the balance of the SERVICEWIDE SPECIALISTS, INC. & HON. COURT OF APPEALS, respondents.
purchase price, said guarantor will in turn be entitled to recover what he has paid from
the debtor-vendee, and ultimately it will be the latter who will be made to bear the  
payment of the of the balance of the price, despite the earlier foreclosure of the chattel
mortgage given by him, thereby indirectly subverting the protection given the latter. VITUG, J.:p
Consequently, the additional mortgage was ordered cancelled. Said ruling was reiterated
in the case of Pascual v. Universal Motors Corporation, 61 SCRA 121. If the vendor From the decision of the Court of Appeals in CA-G.R. CV No. 30693 which
under such circumstance is prohibited from having a recourse against the additional affirmed that of the Regional Trial Court, NCJR, Branch 39, Manila, in Civil Case
security for reasons therein stated, there is no ground why such vendor should not No. 85-29954, confirming the disputed possession of a motor vehicle in favor of
likewise be precluded from further extrajudicially foreclosing the additional security put up private respondent and ordering the payment to it by petitioners of liquidated
by the vendees themselves, as in the instant case, it being tantamount to a further damages and attorney's fees, the instant appeal was interposed.
action   that would violate Article 1484 of the Civil Code, for then is actually no between
5

an additional security put up by the vendee himself and such security put up by a third The appellate court adopted the factual findings of the court a quo, to wit:
party insofar as how the burden would ultimately fall on the vendee himself is concerned.
The plaintiff's evidence shows among others that on December 7, 1984,
Reliance on the ruling in Southern Motors, inc. v. Moscoso, 2 SCRA 168, that in sales on defendants Daniel L. Borbon and Francisco Borbon signed a promissory
installments, where the action instituted is for and the mortgaged property is note (Exh. A) which states among others as follows:
subsequently attached and sold, the sales thereof does not amount to a foreclosure of
the mortgage, hence, the seller creditor is entitled to a deficiency judgment, does not for PROMISSORY NOTE
the stand of the appellants for that case is entirely different from the case at bar. In that
case, the vendor has availed of the first remedy provided by Article 1484 of the Civil
 Acct. No. 115008276 dated (sic) shall not be considered as extending the time for the payment
Makati, Metro Manila, or any of the conditions hereof. Nor shall the failure of the holder hereof
Philippines to exercise any of its right under this note constitute or be deemed as a
December 7, 1984 waiver of such rights.

"P122,856.00 "Maker:

"For value received (installment price of the chattel/s purchased), I/We (S/t) DANIEL L. BORBON, II
jointly and severally promised to pay Pangasinan Auto Mart, Inc. or order,
at its office at NMI Bldg., Buendia Avenue, Makati, MM the sum of One Address: 14 Colt St., Rancho Estate I,
Hundred Twenty Two Thousand Eight Hundred Fifty Six only Concepcion Dos, Marikina, MM
(P122,856.00), Philippine Currency, to be payable without need or notice
or demand, in installments of the amounts following and at the dates (S/t) FRANCISCO BORBON
hereinafter set forth, to wit: P10,238.00 monthly for Twelve (12) months
due and payable on the 7th day of each month starting January, 1985,
Address: 73 Sterling Life Home
provided that at a late payment charge of 3% per month shall be added
Pamplona, Las Piñas, MM
on each unpaid installment from due date thereof until fully paid.
WITNESSES
xxx xxx xxx
(illegible) (illegible)
"It is further agreed that if upon such default, attorney's services are
availed of, an additional sum, equal to twenty five percent (25%) of the
total sum due thereon, which shall not be less than five hundred pesos, ———————— ————————
shall be paid to the holder hereof for attorney's fees plus an additional
sum equivalent to twenty five percent (25%) of the total sum due which "PAY TO THE ORDER OF
likewise shall not be less than five hundred pesos for liquidated damages, FILINVEST CREDIT CORPORATION
aside from expenses of collection and the legal costs provided for in the
Rules of Court. without recourse, notice, presentment and
demand waived
"It is expressly agreed that all legal actions arising out of this note or in
connection with the chattel(s) subject hereof shall only be brought in or PANGASINAN AUTO MART, INC.
submitted to the jurisdiction of the proper court either in the City of Manila
or in the province, municipality or city where the branch of the holder BY:
hereof is located.
(S/T) K.N. DULCE
"Acceptance by the holder thereof of payment of any installment or any Dealer"
part hereof of payment of any installment or any part thereof after due
To secure the Promissory Note, the defendants executed a Chattel
mortgage (Exh. B) on
"One (1) Brand new 1984 Isuzu
KCD 20 Crew Cab (Conv.)
Serial No. KCD20D0F 207685
Key No. 5509
(Exhs. A and B, p. 2 tsn, September 10, 1985)
The rights of Pangasinan Auto mart, Inc. was later assigned to Filinvest
Credit Corporation on December 10, 1984, with notice to the defendants
(Exh. C, p. 10, Record).
On March 21, 1985, Filinvest Credit Corporation assigned all its rights,
interest and title over the Promissory Note and the chattel mortgage to
the plaintiff (Exh. D; p. 3, tsn, Sept. 30, 1985).
The promissory note stipulates that the installment of P10,238.00 monthly
should be paid on the 7th day of each month starting January 1985, but
the defendants failed to comply with their obligation (p. 3, tsn, Sept. 30,
1985).
Because the defendants did not pay their monthly installments, Filinvest
demanded from the defendants the payment of their installments due in
January 29, 1985 by telegram (Exh. E; pp. 3-4, tsn, Sept. 30, 1985).
After the accounts were assigned to the plaintiff, the plaintiff attempted to
collect by sending a demand letter to the defendants for them to pay their
entire obligation which, as of March 12, 1985, totaled P185,257.80 (Exh.
H; pp. 3-4, tsn, Sept. 30, 1985).
For their defense, the defendants claim that what they intended to buy
from Pangasinan Auto mart was a jeepney type Isuzu K. C. Cab. The
vehicle they bought was not delivered (pp. 11-12, tsn, Oct. 17, 1985).
Instead, through misinterpretation and machination, the Pangasinan
Motor Inc. delivered an Isuzu crew cab, as this is the unit available at
their warehouse. Later the representative of Pangasinan Auto mart, Inc.
(assignor) told the defendants that their available stock is an Isuzu Cab
but minus the rear body, which the defendants agreed to deliver with the
understanding that the Pangasinan Auto Mart, Inc. will refund the
defendants the amount of P10,000.00 to have the rear body completed
(pp. 12-34, Exhs. 2 to 3-3A).
Despite communications with the Pangasinan Auto Mart, Inc. the latter
was not able to replace the vehicle until the vehicle delivered was seized
by order of this court. the defendants argue that an asignee stands in the
place of an assignor which, to the mind of the court, is correct. The
asignee exercise all the rights of the assignor (Gonzales vs. Rama
Plantation Co., C.V. 08630, Dec. 2, 1986).
The defendants further claim that they are not in default of their obligation
because the Pangasinan Auto Mart was first guilty of not fulfilling its
obligation in the contract. the defendants claim that neither party incurs
delay if the other does not comply with his obligation. (citing Art. 1169,
N.C.C.) 1
In sustaining the decision of the court a quo, the appellate court ruled that the
petitioners could avoid liability under the promissory note and the chattel
mortgage that secured it since private respondent took the note for value and in
good faith.
In their appeal to this Court, petitioners merely seek a modification of the decision
of the appellate court insofar as it has upheld the court a quo in the award of
liquidated damages and attorney's fees in favor of private respondent. Petitioners
invoke the provisions of Article 1484 of the Civil Code 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 or the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.
The remedies under Article 1484 of the Civil Code are not cumulative but
alternative and exclusive,  which means, as so held in Nonato vs. Intermediate
2 credit.  So, also, a mere demand to surrender the object which is not heeded by
Appellate Court and Investor's Finance Corporation,  that —
3 the mortgagor will not amount to a foreclosure,  but the repossession thereof by
. . . 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 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, that the exercise of on e would bar the exercise of the
others. 4
When the seller assigns his credit to another person, the latter is likewise bound
by the same law. Accordingly, when the assignee forecloses on the mortgage,
there can be no further recovery of the deficiency,  and the seller-mortgagee is
5 that the phrase "any unpaid balance" can only mean the deficiency judgment to
deemed to have renounced any right thereto.  A contrario, in the event of the
6 which the mortgagee may be entitled to when the proceeds from the auction sale
seller-mortgagee first seeks, instead, the enforcement of the additional
mortgages, guarantees or other security arrangements, he must be then be held
to have lost by waiver or non-choice his lien on the chattel mortgage of the
personal property sold by and mortgaged back to him, although, similar to an
action for specific performance, he may still levy on it.
In ordinary alternative obligations, a mere choice categorically an unequivocally
made and then communicated by the person entitled to exercise the option
concludes the parties. The creditor may not thereafter exercise any other option,
unless the chosen alternative proves to be innefectual or unavailing due to no
fault on his part. This rule, in essence, is the difference between alternative
obligations, on the one hand, and alternative remedies, upon the other hand,
where, in the latter case, the choice generally becomes conclusive only upon the
exercise of the remedy. For instance, in one of the remedies expressed in Article
1484 of the Civil Code, it is only when there has been a foreclosure of the chattel
mortgage that the vendee-mortgagor would be permitted to escape from a
deficiency liability. Thus, if the case is one for specific performance, even when
this action is selected after the vendee has refused to surrender the mortgaged
property to permit an extrajudicial foreclosure, that property may still be levied on
execution and an alias writ may be issued if the proceeds thereof are insufficient
to satisfy the judgment
7
8
the vendor-mortgagee would have the effect of a foreclosure.
The parties here concede that the action for replevin has been instituted for the
foreclosure of the vehicle in question (now in the possession of private
respondent). The sole issue raised before us in this appeal is focused on the
legal propriety of the affirmance by the appellate court of the awards made by the
court a quo of liquidated damages and attorney's fees to private respondent.
Petitioners hold that under Article 1484 of the Civil Code, aforequoted, the
vendor-mortgagee or its assignees loses any right "to recover any unpaid
balance of the price" and any "agreement to the contrary (would be) void.
The argument is aptly made. In Macondray & Co. vs. Eustaquio,  we have said
9
are insufficient to cover the "full amount of the secured obligations which . . .
include interest on the principal, attorney's fees, expenses of collection, and the
costs." In sum, we have observed that the legislative intent is not to merely limit
the proscription of any further action to the "unpaid balance of the principal" but,
as so later ruled in Luneta Motor Co. vs. Salvador,   to all other claims that may
10
be likewise be called in for in the accompanying promissory note against the
buyer-mortgagor or his guarantor, including costs and attorney's fees.
In Filipinas Investment & Finance Corporation vs. Ridad   while we reiterated
11
and expressed our agreement on the basic philosophy behind Article 1484, we
stressed, nevertheless, that the protection given to the buyer-mortgagor should
not be considered to be without circumscription or as being preclusive of all other
laws or legal principles. Hence, borrowing from the examples made in Filipinas
Investment, where the mortgagor unjustifiably refused to surrender the chattel
subject of the mortgage upon failure of two or more installments, or if he
concealed the chattel to place it beyond the reach of the mortgagee, that thereby
constrained the latter to seek court relief, the expenses incurred for the
prosecution of the case, such as attorney's fees, could rightly be awarded.

Private respondent bewails the instant petition in that petitioners have failed to
specifically raise the issue on liquidated damages and attorney's fees stipulated
in the actionable documents. In several cases, we have ruled that as long as the
questioned items bear relevance and close relation to those specifically raised,
the interest of justice would dictate that they, too, must be considered and
resolved and that the rule that only theories raised in the initial proceedings may
be taken up by a party thereto on appeal should only refer to independent, not
concomitant matters, to support or oppose the cause of action. 12

Given the circumstances, we must strike down the award for liquidated damages
made by the court a quo but we uphold the grant of attorney's fees which we, like
the appellate court, find it to be reasonable. Parenthetically, while the promissory
note may appear to have been a negotiable instrument, private respondent,
however, clearly cannot claim unawareness of its accompanying documents so
as to thereby gain a right greater than that of the assignor.

WHEREFORE, the appealed decision is MODIFIED by deleting therefrom the

award for liquidated damages; in all other respects, the judgment of the appellate
court is AFFIRMED. No costs.