1. Levy Hermanos, Inc. vs. Gervacio (G.R. No. 46306.

October 27, 1939)

On March 15, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro Blas Gervacio, a Packard
car. Defendant, after making the initial payment, executed a promissory note for the balance of
P2,400, payable on or before June 15, 1937, with interest at 12 per cent per annum, and to secure the
payment of the note, he mortgaged the car to the plaintiff. Defendant failed to pay the note at its
maturity; wherefore, plaintiff foreclosed the mortgage and the car was sold at public auction, at which
plaintiff was the highest bidder for P800. The present action is for the collection of the balance of
P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this admission, the parties submitted
the case for decision. The lower court applied the provisions of Act No. 4122, inserted as articles
1454-A of the Civil Code, and rendered judgment in favor of the defendant.
Issue: Whether or not Article 1451-A of the Civil Code will apply.
Held:
No. Article 1454-A of the Civil Code reads as follows:
"In a contract for the sale of personal property payable in installments, failure to pay two or more
installments shall confer upon the vendor the right to cancel the sale or foreclose the mortgage if one
has been given on the property, without reimbursement to the purchaser of the installments already
paid, if there be an agreement to this effect.
"However, if the vendor has chosen to foreclose the mortgage he shall have no further action against
the purchaser for the recovery of any unpaid balance owing by the same, and any agreement to the
contrary shall be null and void."
In Macondray & Co. vs. De Santos (33 Off. Gaz., 2170), we held that "in order to apply the provisions
of article 1454-A of the Civil Code it must appear that there was a contract for the sale of personal
property payable in installments and that there has been a failure to pay two or more installments."
The contract, in the instant case, while a sale of personal property, is not, however, one on
installments, but on straight term, in which the balance, after payment of the initial sum, should be
paid in its totality at the time specified in the promissory note. The transaction is not, therefore, the
one contemplated in Act No. 4122 and accordingly the mortgagee is not bound by the prohibition
therein contained as to its right to the recovery of the unpaid balance.
Undoubtedly, the law is aimed at those sales where the price is payable in several installments, for,
generally, it is in these cases that partial payments consist in relatively small amounts, constituting
thus a great temptation for improvident purchasers to buy beyond their means. There is no such
temptation where the price is to be paid in cash, or, as in the instant case, partly in cash and partly in
one term, for, in the latter case, the partial payments are not so small as to place purchasers off their
guard and delude them to a miscalculation of their ability to pay.
The suggestion that the cash payment made in this case should be considered as an installment in
order to bring the contract sued upon under the operation of the law, is completely untenable. A cash
payment cannot be considered as a payment by installment, and even if it can be so considered, still
the law does not apply, for it requires non-payment of two or more installments in order that its
provisions may be invoked. Here, only one installment was unpaid.

2. Zayas vs. Luneta Motor Company (G.R. No. L-30583. October 23, 1982)
The petitioner Eutropio Zayas, Jr. purchased on installment basis a motor vehicle described as ONE
(1) UNIT FORD THAMES FREIGHTER W/PUJ BODY with Engine No. 400E-127738 and Chassis No.
400E-127738 from Mr. Roque Escaño of the Escaño Enterprises in Cagayan de Oro City, dealer of
respondent Luneta Motor Company.
The motor vehicle was delivered to the petitioner who 1) paid the initial payment in the amount of
P1,006.82, and 2) executed a promissory note in the amount of P7,920.00, the balance of the total
selling price, in favor of respondent Luneta Motor Company. The promissory note stated the amounts
and dates of payment of twenty-six installments covering the P7,920.00 debt. Simultaneously with the
execution of the promissory note and to secure its payment, the petitioner executed a chattel
mortgage on the subject motor vehicle in favor of the respondent. After paying a total amount of
P3,148.00, the petitioner was unable to pay further monthly installments prompting the respondent
Luneta Motor Company to extrajudicially foreclose the chattel mortgage.
The motor vehicle was sold at public auction with the respondent Luneta Motor Company represented
by Atty. Leandro B. Fernandez as the highest bidder in the amount of P5,000.00. Since the payments
made by petitioner Eutropio Zayas, Jr. plus the P5,000.00, realized 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 No. 165263 with the City Court of
Manila for the recovery of the balance of P1,551.74 plus interests.
Luneta Motor Company alleged in its complaint that defendant-Eutropio Zayas, Jr. executed a
promissory note in the amount of P7,920.00 in its favor; that out of the P7,920.00, Eutropio Zayas, Jr.
had paid only P6,368.26 plus interest up to the date of the sale at public auction of the motor vehicle;
that the balance of P1,551.74 plus interest of 12% thereon from that date had already become due
and payable but despite repeated demands to pay the same, Eutropio Zayas, Jr., refused and failed
to pay.
He (defendant, Zayas) alleged as affirmative defenses, among others: 1) that the plaintiff has no
cause of action against him; and 2) that pursuant to Article 1484 of the New Civil Code and the case
of Pacific Commercial Co. v. De La Rama, (72 Phil. 380) his obligation per the promissory note was
extinguished by the sale at public auction of the motor vehicle, the subject of the chattel mortgage
which was executed by him in favor of the plaintiff as security for the payment of said promissory note.
In its Reply, Luneta Motor Company denied the applicability of Article 1484 of the Civil Code ". . . e
simple reason that the contract involved between the parties is not one for a sale on installment ".
Issue: Whether or not a deficiency amount after the motor vehicle, subject of the chattel mortgage,
has been sold at public auction could still be recovered.
Held:
No. "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:
xxx xxx xxx
"(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,
xxx xxx xxx
". . . 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 was aptly stated in the case of Bachrach Motor
Co. vs. Millan, supra thus:
" '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.'" (Cruz v. Filipinas Investment &
Finance Corporation 23 SCRA 791)
 3. Tajanlangit vs. Southern Motors, Inc. (G.R. No. L-10789. May 28, 1957)
In April 1953 Amador Tajanlangit and his wife Angeles, residents of Iloilo, bought from the Southern
Motors Inc. of Iloilo two tractors and a thresher. In payment for the same, they executed the
promissory note whereby they undertook to satisfy the total purchase price of P24,755.75 in several
installments (with interest) payable on stated dates from May 18, 1953 to December 10, 1955. The
note stipulated that if default be made in the payment of interest or of any installment, then the total
principal sum still unpaid with interest shall at once become demandable etc. The spouses failed to
meet any installment. Wherefore, they were sued, in the above Civil Case No. 2942, for the amount of
the promissory note. The spouses defaulted, and the court, after listening to the Southern Motors'
evidence entered judgment for it in the total sum of P24,755.75 together with interest at 12 per cent,
plus 10 per cent of the total amount due as attorney's fees and costs of collection.
Carrying out the order of execution, the sheriff levied on the same machineries and farm implements
which had been bought by the spouses; and later sold them at public auction to the highest bidder —
which turned out to be the Southern Motors itself — for the total sum of P10,000.
As its judgment called for much more, the Southern Motors subsequently asked and obtained, an
alias writ of execution; and pursuant thereto, the provincial sheriff levied attachment on the
Tajanlangits' rights and interests in certain real properties — with a view to another sale on execution.
To prevent such sale, the Tajanlangits instituted this action in the Iloilo court of first instance for the
purpose among others, of annulling the alias writ of execution and all proceedings subsequent
thereto. Their two main theories: (1) They had returned the machineries and farm implements to the
Southern Motors Inc., the latter accepted them, and had thereby settled their accounts; for that
reason, said spouses did not contest the action in Civil Case No. 2942; and (2) as the Southern
Motors Inc. had repossessed the machines purchased on installment (and mortgaged) the buyers
were thereby relieved from further responsibility, in view of the Recto Law, now article 1484 of the
New Civil Code.
Issue: Whether or not defendant may claim the unpaid balance.
Held:
"What is being sought in this present action" say appellants "is to prohibit and forbid the appellee
Sheriff of Iloilo from attaching and selling at public auction sale the real properties of appellants
because that is now forbidden by our law after the chattels that have been purchased and duly
mortgaged to the vendor-mortgagee had already been repossessed by the same vendor-mortgagee
and later on sold at public auction sale and purchased by the same at such meager sum of P10,000."
"Our law" provides,
"ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee 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."
(New Civil Code.)
Appellants would invoke the last paragraph. But there has been no foreclosure of the chattel
mortgage nor a foreclosure sale. Therefore the prohibition against further collection does not apply.
"At any rate it is the actual sale of the mortgaged chattel in accordance with section 14 Act No. 1508
that would bar the creditor (who chooses to foreclose) from recovering any unpaid balance. (Pacific
Com. Co. vs. De la Rama, 72 Phil. 380.)" Manila Motor Co. vs. Fernandez, 99 Phil., 782.)
It is true that there was a chattel mortgage on the goods sold. But the Southern Motors elected to sue
on the note exclusively, i.e. to exact fulfillment of the obligation to pay. It had a right to select among
the three remedies established in Article 1484. In choosing to sue on the note, it was not thereby
limited to the proceeds of the sale, on execution, of the mortgaged good.
 4. Cruz vs. Filipinas Investment & Finance Corporation (G.R. No. L-24772. May 27, 1968)
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 in the sum of
P44,616.24. That to secure the payment of the promissory note, Cruz executed in favor of the seller
Far East Motor Corporation, a chattel mortgage over the aforesaid motor vehicle.
As no down payment was made by Cruz, the seller, Far East Motor Corporation, on the very same
date, July 15, 1963, required and Cruz agreed to give, additional security for his obligation besides the
chattel mortgage; 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
improvements thereon, in San Miguel, Bulacan . . . That said land has an area of 68,902 square
meters, more or less, and covered by Transfer Certificate of Title No. T-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.
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 to the defendant, Filipinas Investment & Finance Corporation, with due notice of
such assignment to the plaintiffs . . .;
That plaintiff Cruz defaulted in the payment of the promissory note; 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;
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;
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). . .
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;
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 . . .;
That pursuant to a provision of 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, to satisfy the sum of P43,318.92, the total outstanding obligation of the plaintiffs to the
defendant.
Issue: 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.
Held:
No. 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, 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, that the
exercise of one would bar the exercise of the orders. It may also be stated that the established rule is
to the effect that the foreclosure and actual sale of a mortgage 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 was aptly stated in the case of Bachrach Motor Co. vs. Millan, supra, thus:
"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."
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 appellant's argument is to overlook the fact that if the
guarantor should be compelled to pay the balance of the purchaser 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.

5. PCI Leasing and Finance, Inc. vs. Giraffe-X Creative Imaging, Inc. (G.R. No. 142618.
July 12, 2007)
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease
Agreement, 1 whereby the former leased out to the latter one (1) set of Silicon High Impact Graphics
and accessories worth P3,900,000.00 and one (1) unit of Oxberry Cinescan 6400-10 worth
P6,500,000.00. In connection with this agreement, the parties subsequently signed two (2) separate
documents, each denominated as Lease Schedule. Likewise forming parts of the basic lease
agreement were two (2) separate documents denominated Disclosure Statements of Loan/Credit
Transaction (Single Payment or Installment Plan) 3 that GIRAFFE also executed for each of the
leased equipment. These disclosure statements inter alia described GIRAFFE, vis-à-vis the two
aforementioned equipment, as the "borrower" who acknowledged the "net proceeds of the loan," the
"net amount to be Enanced," the "Enancial charges," the "total installment payments" that it must pay
monthly for thirty-six (36) months, exclusive of the 36% per annum "late payment charges." Thus, for
the Silicon High Impact Graphics, GIRAFFE agreed to pay P116,878.21 monthly, and for Oxberry
Cinescan, P181,362.00 monthly.
By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount of
P3,120,000.00 by way of "guaranty deposit," a sort of performance and compliance bond for the two
equipment. Furthermore, the same agreement embodied a standard acceleration clause, operative in
the event GIRAFFE fails to pay any rental and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental- payment
obligations. And following a three-month default, PCI LEASING, through one Atty. Florecita R.
Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter 4 dated February
24, 1998 to GIRAFFE.
The demand went unheeded.
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case against
GIRAFFE. In its complaint, 5 docketed in said court as Civil Case No. 98- 34266 and raffled to Branch
227 6 thereof, PCI LEASING prayed for the issuance of a writ of replevin for the recovery of the
leased property.
Upon PCI LEASING's posting of a replevin bond, the trial court issued a writ of replevin, paving the
way for PCI LEASING to secure the seizure and delivery of the equipment covered by the basic lease
agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing that
the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action. Expounding
on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of
personal property, PCI LEASING is barred from further pursuing any claim arising from the lease
agreement and the companion contract documents, adding that the agreement between the parties is
in reality a lease of movables with option to buy. The given situation, GIRAFFE continues, squarely
brings into applicable play Articles 1484 and 1485 of the Civil Code, commonly referred to as the
Recto Law.
It is thus GIRAFFE's posture that the aforequoted Article 1484 of the Civil Code applies to its
contractual relation with PCI LEASING because the lease agreement in question, as supplemented by
the schedules documents, is really a lease with option to buy under the companion article, Article
1485. Consequently, so GIRAFFE argues, upon the seizure of the leased equipment pursuant to the
writ of replevin, which seizure is equivalent to foreclosure, PCI LEASING has no further recourse
against it. In brief, GIRAFFE asserts in its Motion to Dismiss that the civil complaint filed by PCI
LEASING is proscribed by the application to the case of Articles 1484 and 1485, supra, of the Civil
Code.
In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with GIRAFFE is a
straight lease without an option to buy. Prescinding therefrom, PCI LEASING rejects the applicability
to the suit of Article 1484 in relation to Article 1485 of the Civil Code, claiming that, under the terms
and conditions of the basic agreement, the relationship between the parties is one between an
ordinary lessor and an ordinary lessee.
Issue: Whether or not the underlying Lease Agreement, Lease Schedules and the Disclosure
Statements that embody the Financial leasing arrangement between the parties are covered by and
subject to the consequences of Articles 1484 and 1485 of the New Civil Code.
Held:
Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment sales
of movable property, does not apply to a Financial leasing agreement because such agreement, by
definition, does not confer on the lessee the option to buy the property subject of the Financial lease.
To the petitioner, the absence of an option-to-buy stipulation in a Financial leasing agreement, as
understood under R.A. No. 8556, prevents the application thereto of Articles 1484 and 1485 of the
Civil Code.

6. Arra Realty Corp. vs. Guarantee Development Corp., and Insurance Agency (G.R. No.
142310. September 30, 2004)
Arra Realty Corporation (ARC) was the owner of a parcel of land in Makati City. It decided to construct
a five-storey building on its property and engaged the services of Engr. Penaloza as project and
structural engineer. Engr. Penaloza and ARC agreed that the former would share the purchase price
of one floor of the building for the price of P3.2M: P900,738 payable within 60 days and the balance
payable in 20 equal quarterly installments of P110,205. Her payments would be credited to her
account in payment of her stock subscription in the ARC’s capital stock. Engr. Penaloza took
possession of the ½ portion of the 2nd floor, where she put up her office and operated the St. Michael
International Institute of Technology.
Unknown the Engr. Penaloza, ARC had executed a real estate mortgage over the lot and the entire
building in favour of China Banking Corporation. Upon learning of the same, she stopped paying the
installments due on the purchase price of the property.
She wrote to the bank informing them that ARC had conveyed a portion of the 2 nd floor of the building
to her, and that she had already paid P1.7M of the total price of P3.1M. She offered to open an
account with the bank in her name to make monthly deposits to serve as payments of the equivalent
loan of the ARC. She also proposed for the bank to assist her in questioning the ARC to execute a
deed of absolute sale over the portion of the 2 nd floor she had purchased. The bank rejected the
proposal. She then wrote to ARC, informing them of the same and that she would be withholding
installment payments.
Engr. Penaloza transferred the school to another building she had purchased but retained her office
on the ARC building. She later discovered that her office had been padlocked. She had it reopened
and continued holding office thereat. To protect her rights as a purchaser, she executed an affidavit of
adverse claim over the property which was annotated on the TCT. Such claim was thereafter
cancelled.
When ARC failed to pay its loan to China Bank, the property was foreclosed judicially and sold at a
public auction, with the bank being the highest bidder. The ARC and Guarantee Development
Corporation and Insurance Agency (GDCIA) executed a deed of conditional sale covering the building
and the lot, part of which was to be used to redeem the property from China Bank.
The property was redeemed and ARC executed a deed of absolute sale over it in favor of GDCIA.
The ARC obliged itself to deliver possession of the property without and occupants therein.
Engr. Penaloza filed a complaint against the ARC and the GDCIA with the RTC, praying for specific
performance or damages. The RTC ruled in favour or Penaloza and the GDCIA, and against the ARC.
On appeal, the CA affirmed the appealed decision.
Petitioner’s contention – ARC posits that no contract of sale over the subject property was perfected
between them and respondent Penaloza, because the latter failed to pay the balance of the total
purchase price of a portion of the 2nd floor of the building as provided in their agreement. They aver
that respondent Penaloza bound and obliged herself to pay the downpayment and the balance in
twenty (20) equal quarterly payments. However, Penaloza was able to complete the downpayment
later than what was agreed upon and managed to pay only three quarterly installments, and part of
the fourth quarterly installment. Also, Penaloza used the property as a school instead of an office, and
later abandoned the same without prior notice to ARC.
Respondent’s contention – Penaloza contends that her agreement with ARC was a perfect contract of
sale. Also, GDCIA was not an innocent purchaser in good faith because, by its own admission, it
purchased the building although it was occupied. Thus, she was not barred from recovering property
from them.
Issue:
1. Whether or not there was a perfected contract of sale between ARC and Penaloza.
2. Whether or not Penaloza’s actions of suspending payment were justified.
Held:
1. Yes. As gleaned from the agreement, the petitioner ARC, as vendor, and respondent
Penaloza, as vendee, entered into a contract of sale over a portion the 2 nd floor of the building
yet to be constructed for the price of P3.1M payable in installments, and the balance payable
in 20 equal quarterly payments. AS soon as the 2 nd floor was constructed within 5 months,
respondent Penaloza would take possession of the property, and title thereto would be
transferred to her name.
The parties had agreed on the three (3) elements of subject matter, price, and terms of payment.
Hence, the contract of sale was perfected, it being consensual in nature, perfected by mere consent,
which, in turn, was manifested the moment there was a meeting of the minds as to the offer and the
acceptance thereof. The perfection of the sale is not negated by the fact that the property subject of
the sale was not yet in existence. This is so because the ownership by the seller of the thing sold at
the time of the perfection of the contract of sale is not an element of its perfection.
A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the
seller at the time of its perfection. What the law requires is that the seller has the right to transfer
ownership at the time the thing is delivered. Perfection per se does not transfer ownership which
occurs upon the actual or constructive delivery of the thing sold.
2. Yes. When Penaloza took possession of the property by putting up her office and operating
her school, she became the owner of the property conformably with Art. 1477 of the Civil
Code.
In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the
vendor cannot recover the thing sold even if the vendee failed to pay in full the initial payment for the
property. The failure of the buyer to pay the purchase price within the stipulated period does not by
itself bar the transfer of ownership or possession of the property sold, nor ipso facto rescind the
contract. Such failure will merely give the vendor the option to rescind the contract of sale judicially or
by notarial demand as provided for by Article 1592.
Admittedly, respondet Penaloza failed to pay the downpayment on time. But then, the petitioner ARC
accepted, without any objections, the delayed payments of the respondent; hence, as provided in
Article 1235, the obligation of the respondent is deemed complied with.
The respondent cannot be blamed for suspending further remittances of payment to the petitioner
ARC because when she pushed for the issuance of her title to the property after taking possession
thereof, the ARC failed to comply. She was aghast when she discovered that, even before she took
possession of the property, the petitioner ARC had already mortgaged the lot and the building to the
China Banking Corporation; when she offered to pay the balance of the purchase price of the property
to enable her to secure her title thereon, the petitioner ARC ignored her offer. Under Article 1590, a
vendee may suspend the payment of the price of the property sold.

7. Laforteza vs. Machuca

The property involved consists of a house and lot located at No. 7757 Sherwood Street, Marcelo
Green Village, Parañaque, Metro Manila. The subject property is registered in the name of the late
Francisco Q. Laforteza, although it is conjugal in nature.
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of
defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact
authorizing them jointly to sell the subject property and sign any document for the settlement of the
estate of the late Francisco Q. Laforteza.
Likewise on the same day, defendant Michael Z. Laforteza executed a Special Power of Attorney in
favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise, granting the same
authority. Both agency instruments contained a provision that in any document or paper to exercise
authority granted, the signature of both attorneys-in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of Attorney in favor of
defendant Roberto Z. Laforteza for the purpose of selling the subject property. A year later, on
October 30, 1989, Dennis Z. Laforteza executed another Special Power of Attorney in favor of
defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the
purpose of selling the subject property and signing any document for the settlement of the estate of
the late Francisco Q. Laforteza. The subsequent agency instrument contained similar provisions that
both attorneys-in-fact should sign any document or paper executed in the exercise of their authority.
In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q.
Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a
Memorandum of Agreement (Contract to Sell) with the plaintiff over the subject property for the sum of
SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows:
(a). P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not effected
due to the fault of the plaintiff;
(b). P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q.
Laforteza and upon execution of an extra-judicial settlement of the decedent's estate with sale in favor
of the plaintiff.
On January 20, 1989, plaintiff paid the earnest money of THIRTYTHOUSAND PESOS (P30,000.00),
plus rentals for the subject property.
On September 18, 1998, 3 defendant heirs, through their counsel wrote a letter to the plaintiff
furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had
thirty (30) days to produce the balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the
Memorandum of Agreement which plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the
THIRTY (30) DAYS deadline up to November 15, 1989 within which to produce the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00). Defendant Roberto Z. Laforteza, assisted by his
counsel Atty. Romeo L. Gutierrez, signed his conformity to the plaintiff's letter request. The extension,
however, does not appear to have been approved by Gonzalo Z. Laforteza, the second attorney-in-
fact as his conformity does not appear to have been secured.
On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z.
Laforteza, that he already had the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00)
covered by United Coconut Planters Bank Manager's Check No. 000814 dated November 15, 1989.
However, the defendants, refused to accept the balance. Defendant Roberto Z. Laforteza had told him
that the subject property was no longer for sale.
On November 20, 1998, defendants informed the plaintiff that they were canceling the Memorandum
of Agreement (Contract to Sell) in view of the plaintiff's failure to comply with his contractual
obligations.
Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED
THOUSAND PESOS (P600,000.00). Defendants, however, insisted on the rescission of the
Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific performance. The
lower court rendered judgment on July 6, 1994 in favor of the plaintiff. Petitioners appealed to the
Court of Appeals, which affirmed with modification the decision of the lower court.
Issue:
1. Whether or not it is merely a lease agreement with “option to purchase”.
2. Whether the failure of the respondent to pay the balance of the purchase price within the
period allowed is fatal to his right to enforce the agreement (rescission).
Held:
 1. No. A perusal of the Memorandum Agreement shows that the transaction between the
petitioners and the respondent was one of sale and lease.
We do not subscribe to the petitioners' view that the Memorandum Agreement was a contract to sell.
There is nothing contained in the Memorandum Agreement from which it can reasonably be deduced
that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would
explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not
as yet agree or consent to transfer ownership of the property subject of the contract to sell until the full
payment of the price, such payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the obligation from
acquiring any obligatory force. 19 There is clearly no express reservation of title made by the
petitioners over the property, or any provision which would impose non-payment of the price as a
condition for the contract's entering into force. Although the memorandum agreement was also
denominated as a "Contract to Sell", we hold that the parties contemplated a contract of sale. A deed
of sale is absolute in nature although denominated a conditional sale in the absence of a stipulation
reserving title in the petitioners until full payment of the purchase price. 20 In such cases, ownership
of the thing sold passes to the vendee upon actual or constructive delivery thereof. 21 The mere fact
that the obligation of the respondent to pay the balance of the purchase price was made subject to the
condition that the petitioners first deliver the reconstituted title of the house and lot does not make the
contract a contract to sell for such condition is not inconsistent with a contract of sale.
2. No. The rescission of a sale of an immovable property is specifically governed by Article 1592
of the New Civil Code, which reads:
"In the sale of immovable property, even though it may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no demand for rescission of the contract
has been made upon him either judicially or by a notarial act. After the demand, the court may not be
grant him a new term."
It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. The
November 20, 1989 letter of the petitioners informing the respondent of the automatic rescission of
the agreement did not amount to a demand for rescission, as it was not notarized. 26 It was also
made five days after the respondent's attempt to make the payment of the purchase price. This offer
to pay prior to the demand for rescission is sufficient to defeat the petitioners' right under article 1592
of the Civil Code. 27 Besides, the Memorandum Agreement between the parties did not contain a
clause expressly authorizing the automatic cancellation of the contract without court intervention in the
event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a
contract of sale where there is no express stipulation authorizing him to extrajudicially rescind. 28
Neither was there a judicial demand for the rescission thereof. Thus, when the respondent filed his
complaint for specific performance, the agreement was still in force inasmuch as the contract was not
yet rescinded. At any rate, considering that the six-month period was merely an approximation of the
time it would take to reconstitute the lost title and was not a condition imposed on the perfection of the
contract and considering further that the delay in payment was only thirty days which was caused by
the respondents justified but mistaken belief that an extension to pay was granted to him, we agree
with the Court of Appeals that the delay of one month in payment was a mere casual breach that
would not entitle the respondents to rescind the contract. Rescission of a contract will not be permitted
for a slight or casual breach, but only such substantial and fundamental breach as would defeat the
very object of the parties in making the agreement.

8. Fidela del Castillo Vda. De Mistica vs. Sps. Naguiat (G.R. No. 137909. December 11,
2003)
Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at
Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat]
sometime in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino Naguiat]
over a portion of the aforementioned lot containing an area of 200 square meters. This agreement
was reduced to writing in a document entitled 'Kasulatan sa Pagbibilihan'.
Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of P2,000.00.
He made another partial payment of P1,000.00 on 7 February 1980. He failed to make any payments
thereafter. Eulalio Mistica died sometime in October 1986.
On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and
refusal of [respondents] to pay the balance of the purchase price constitutes a violation of the contract
which entitles her to rescind the same; that [respondents] have been in possession of the subject
portion and they should be ordered to vacate and surrender possession of the same to [petitioner];
that the reasonable amount of rental for the subject land is P200.00 a month; that on account of the
unjustified actuations of [respondents], [petitioner] has been constrained to litigate where she incurred
expenses for attorney's fees and litigation expenses in the sum of P20,000.00.
In their answer and amended answer, [respondents] contended that the contract cannot be rescinded
on the ground that it clearly stipulates that in case of failure to pay the balance as stipulated, a yearly
interest of 12% is to be paid. [Respondent Bernardino Naguiat] likewise alleged that sometime in
October 1986, during the wake of the late Eulalio Mistica, he offered to pay the remaining balance to
[petitioner] but the latter refused and hence, there is no breach or violation committed by them and no
damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said
document; that he is presently the owner in fee simple of the subject lot having acquired the same by
virtue of a Free Patent Title duly awarded to him by the Bureau of Lands; and that his title and
ownership had already become indefeasible and incontrovertible.
The trial court decided in favor of the petitioners ordering defendant to pay petitioner and the heirs of
Eulalio Mistica the balance of the purchase price in the amount of P17,000, with 12% interest per
annum, and to return to petitioner and the heirs of Eulalio Mistica the extra area of 58 square meters.
Issue: Whether or not petitioner may rescind the contract of sale.
Held:
No. In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission.
Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the violation of
the reciprocity between parties, brought about by a breach of faith by one of them. Rescission,
however, is allowed only where the breach is substantial and fundamental to the fulfillment of the
obligation.
In the present case, the failure of respondents to pay the balance of the purchase price within ten
years from the execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was
stipulated that payment could be made even after ten years from the execution of the Contract,
provided the vendee paid 12 percent interest.
The stipulations of the contract constitute the law between the parties; thus, courts have no alternative
but to enforce them as agreed upon and written. Moreover, it is undisputed that during the ten-year
period, petitioner and her deceased husband never made any demand for the balance of the
purchase price. Petitioner even refused the payment tendered by respondents during her husband's
funeral, thus showing that she was not exactly blameless for the lapse of the ten-year period. Had she
accepted the tender, payment would have been made well within the agreed period.

9. Fedman Development Corp., vs. Agcaoili (G.R. No. 165025. August 31, 2011)
FDC was the owner and developer of a condominium project known as Fedman Suites Building (FSB)
located on Salcedo Street, Legazpi Village, Makati City. On June 18, 1975, Interchem Laboratories
Incorporated (Interchem) purchased FSB's Unit 411 under a contract to sell. On March 31, 1977, FDC
executed a Master Deed with Declaration of Restrictions, and formed the Fedman Suite Condominium
Corporation (FSCC) to manage FSB and hold title over its common areas.
On October 10, 1980, Interchem, with FDC's consent, transferred all its rights in Unit 411 to
respondent Federico Agcaoili (Agcaoili), a practicing attorney who was then also a member of the
Provincial Board of Quezon Province. 5 As consideration for the transfer, Agcaoili agreed: (a) to pay
Interchem P150,000.00 upon signing of the deed of transfer; (b) to update the account by paying to
FDC the amount of P15,473.17 through a 90 day-postdated check; and (c) to deliver to FDC the
balance of P137,286.83 in 135 equal monthly installments of P1,857.24 effective October 1980,
inclusive of 12% interest per annum on the diminishing balance. The obligations Agcaoili assumed
totaled P302,760.00.
In December 1983, the centralized air-conditioning unit of FSB's fourth floor broke down. 7 On
January 3, 1984, Agcaoili, being thereby adversely affected, wrote to Eduardo X. Genato (Genato),
vice-president and board member of FSCC, demanding the repair of the air-conditioning unit. Not
getting any immediate response, Agcaoili sent follow-up letters to FSCC reiterating the demand, but
the letters went unheeded. He then informed FDC and FSCC that he was suspending the payment of
his condominium dues and monthly amortizations.
On August 30, 1984, FDC cancelled the contract to sell involving Unit 411 and cut off the electric
supply to the unit. Agcaoili was thus prompted to sue FDC and FSCC in the RTC, Makati City, Branch
144 for injunction and damages. The parties later executed a compromise agreement that the RTC
approved through its decision of August 26, 1985. As stipulated in the compromise agreement,
Agcaoili paid FDC the sum of P39,002.04 as amortizations for the period from November 1983 to July
1985; and also paid FSCC an amount of P17,858.37 for accrued condominium dues, realty taxes,
electric bills, and surcharges as of March 1985. As a result, FDC reinstated the contract to sell and
allowed Agcaoili to temporarily install two window-type air-conditioners in Unit 411.
On April 22, 1986, FDC again disconnected the electric supply of Unit 411. Agcaoili thus moved for
the execution of the RTC decision dated August 26, 1985. On July 17, 1986, the RTC issued an order
temporarily allowing Agcaoili to obtain his electric supply from the other units in the fourth floor of FSB
until the main meter was restored.
Petitioner contended that it disconnected the unit’s electricity for the second time because Agcaoili
failed to pay his monthly dues despite repeated demands, and that it did not repair the air-conditioning
unit because of dwindling collections caused by delayed payments by some unit holders.
Respondent (Agcaoili) contended that he suspended payment because the payment of interest under
the contract to sell was illegaly increased by the petitioner from 12 percent to 24 percent per annum.
Issue: Whether or not defendant Agcaoili may suspend the payment of his monthly amortizations
Held:
No. Although Section II, paragraph d of the Contract to Sell entered into by the parties states that,
"should there be an increase in bank interest rate for loans and/or other 3nancial accommodations,
the rate of interest provided for in this contract shall be automatically amended to equal the said
increased bank interest rate, the date of said amendment to coincide with the date of said increase in
interest rate," the said increase still needs to [be] accompanied by valid proofs and not one of the
parties must unilaterally alter what was originally agreed upon. However, FDC failed to substantiate
the alleged increase with sufficient proof, thus we quote with approval the findings of the lower court,
to wit:
"In the instant case, defendant FDC failed to show by evidence that it incurred loans and/or other
3nancial accommodations to pay interest for its loans in developing the property. Thus, the increased
interest rates said defendant is imposing on plaintiff is not justi3ed, and to allow the same is
tantamount to unilaterally altering the terms of the contract which the law proscribes. Article 1308 of
the Civil Code provides:
Art. 1308 — the contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them."
For this reason, the court sees no valid reason for defendant FDC to cancel the contract to sell on
ground of default or non-payment of monthly amortizations."
It was also grave error on the part of the FDC to cancel the contract to sell for non-payment of the
monthly amortizations without taking into consideration Republic Act 6552, otherwise known as the
Maceda Law. Thus, in order for FDC to have validly cancelled the existing contract to sell, it must
have 3rst complied with Section 3 (b) of RA 6552. FDC should have refund the appellee the cash
surrender value of the payments on the property equivalent to fifty percent of the total payments
made.