G.R. No. 42256 - Bachrach Motor Co., Inc. vs. Millan

The plaintiff, Bachrrach Motor Co., Inc., is a corporation duly organized under the laws of the Philippine Islands with principal office in Manila.

On December 12, 1933, the defendant executed and delivered a promissory note to the plaintiff for the sum of P939. This note was intended to settle the balance on the purchase of a secondhand Renault touring car.

In connection with the sale, the defendant also executed a chattel mortgage in favor of the plaintiff on the same date, duly registered with the Register of Deeds of the City of Manila.

Both the promissory note and chattel mortgage formed parts of the contractual arrangement between the parties.

The defendant failed to pay the installments due on December 22, 1933, January 22, 1934, and February 22, 1934, thereby violating the terms of both the promissory note and the chattel mortgage.

After crediting the payments already made, an outstanding balance of P928.50 remained, with interest accruing at 12% per annum from March 17, 1934.

The defendant subsequently offered to return the automobile in full satisfaction of the obligation, but the plaintiff refused to accept this remedy and instead filed an action to recover the full amount.

The trial court, after incorporating the agreed statement of facts, considered the provisions of Article 1454-A of the Civil Code (as amended by Act No. 4122).

It held that, under Article 1454-A, the vendor (plaintiff) must choose between foreclosing the chattel mortgage or canceling the sale, with the understanding that cancellation would allow retention of the installments already paid.

Based on this interpretation, the trial court dismissed the plaintiff’s action against the defendant, awarding the costs against the plaintiff.

The facts were established by agreed stipulation, including the execution of the promissory note and chattel mortgage, the default in installment payments, and the defendant’s subsequent offer to return the vehicle.

The crux of the dispute centers on the interpretation of the vendor’s remedies under Article 1454-A and whether the vendor's right to exact the fulfillment of the obligation, as provided under Article 1124 of the Civil Code, remains intact.

Whether Article 1454-A of the Civil Code limits the remedies available to a vendor of personal property on the installment plan exclusively to cancellation of the sale or foreclosure of the mortgage, thereby precluding the recovery of the remaining balance on the promissory note.
Whether the amendment of Article 1454 of the Civil Code by Act No. 4122 (introducing Article 1454-A) has effectively repealed or restricted the vendor’s additional right to exact the fulfillment of contractual obligations as implied in Article 1124 of the Civil Code.
What constitutes the proper interpretation and application of the vendor’s rights in cases where the purchaser fails to timely pay installments, considering the legislative intent to prevent abuses in the foreclosure of chattel mortgages.