G.R. No. 177741 - People vs. Rivera

Case Digest (G.R. No. 177741)
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Facts:

Parties and Transaction Background

The case involves three principal parties:

Filipinas Investment & Finance Corporation (plaintiff-appellant)
Julian R. Vitug, Jr. (defendant)
Supreme Sales & Development Corporation (defendant-appellee)

The dispute arises from a transaction involving the sale of a 4-door Consul sedan, where:

Defendant Vitug executed a promissory note for P14,605.00 payable in monthly installments as agreed upon in a schedule.
The purchase price was secured by a chattel mortgage over the automobile.

Notably, on the same day of the transaction, appellee negotiated and assigned its rights in the promissory note and mortgage to the appellant on a with-recourse basis.

This assignment included an express stipulation that if the buyer defaulted, the appellant would have recourse against the assignor (appellee).

Default and Foreclosure Process

Defendant Vitug defaulted on his installment payments:

The payment due on January 6, 1965, was missed.
Three subsequent installments, due on February 6, March 6, and April 6, 1965, were also defaulted.

As there was a contractual provision rendering the entire obligation immediately due upon default of two or more installments, appellant demanded payment of the outstanding balance from appellee.
Pursuant to the authority granted in the assignment agreement, the appellant:

Secured possession of the automobile using a writ of replevin.
Subsequently, the defendant voluntarily surrendered the vehicle.

The car was then sold at public auction; however, the sale proceeds were insufficient, leaving a deficiency of P8,349.35, plus an interest of 12% per annum from April 21, 1965.

Legal Documents and Agreements

Key documents in the case included:

The promissory note executed by defendant Vitug.
The chattel mortgage securing the promissory note.
The Deed of Assignment executed by Supreme Sales & Development Corporation transferring its rights, on a with-recourse basis, to the appellant.

The recourse clause in the assignment stipulated that should the sale of the vehicle fail to cover the defect, the seller (appellee) would still be liable for the deficiency, alongside attorney’s fees and costs.

Motion to Dismiss and Lower Court Proceedings

On August 4, 1965, appellee filed a motion to dismiss the amended complaint, arguing that under Article 1484 of the Civil Code (known as the Recto Law), appellant had no valid cause of action against it.
The Recto Law provides that in sales on installment:

A vendor may cancel the sale if the vendee fails to pay two or more installments, thereby forfeiting any right to claim further action against the purchaser for any unpaid balance.

The lower court, in its order dated August 30, 1965, accepted this motion and dismissed the action against appellee.

The court held that by choosing to foreclose the mortgage, appellant had effectively limited its remedy solely to the seizure and public sale of the car, with no entitlement to a deficiency judgment.

Subsequent Developments on Appeal

On September 23, 1965, appellant filed a motion for reconsideration of the dismissal.

This motion was denied on October 26, 1965.

The present appeal challenges the trial court’s ruling on the application of Article 1484, contending that:

The recourse clause in the assignment of the promissory note and chattel mortgage between appellant and appellee should be valid even under the Recto Law.

Comparison with Prior Jurisprudence

The appellant distinguished this case from the earlier case of Cruz et al. vs. Filipinas Investment & Finance Corporation:

In Cruz, the action sought to recover against a third party furnishing additional security, which was held impermissible under the Recto Law.
In the present case, the agreement clearly provided for a recourse against the seller/appellee itself, independent of any action by the buyer.

The argument asserts that the transaction was a commercial discounting operation rather than a typical installment sale, thereby exempting it from the strict limitations imposed by Article 1484.

Issues:

Whether the recourse clause embedded in the assignment of the promissory note and chattel mortgage—specifically reserving the right of recourse against the seller (appellee)—is valid and enforceable despite the provisions of Article 1484 of the Civil Code.
Whether the trial court erred in applying Article 1484 (the Recto Law) to bar the appellant’s claim for deficiency beyond the proceeds of the foreclosure sale.
Whether the nature of the transaction, being an ordinary discounting operation involving a with-recourse assignment, distinguishes the present action from those typically governed by the Recto Law.

Ruling:

(Subscriber-Only)

Ratio:

(Subscriber-Only)

Doctrine:

(Subscriber-Only)

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