LUNETA MOTOR COMPANY, PLAINTIFF AND APPELLANT, VS. BAGUIO BUS COMPANY, INC., DEFENDANT AND APPELLANT.

Defendant Baguio Bus Co., Inc., on 3 different occasions, bought
from plaintiff Luneta Motor Company, on installment basis, 6 REO trucks
(Exhs. A, D, and G), whereby it paid certain sums as down payments. The
unpaid balances were covered by 3 promissory notes (Exhs. C, F, and I)
in which defendant bound itself to pay the same in 24 equal monthly
installments, with interest thereon at the rate of 12% per annum from date of execution until paid, and in case of default, an additional sum equal to 20%
of the amount due shall also be paid as attorney’s fees. To guarantee
the payment of these 3 notes, defendant mortgaged the same trucks to
plaintiff (Exhs. B, E, and H).

Since defendant failed to pay the promissory notes under the terms
and conditions therein stipulated, plaintiff filed with the Court of
First Instance of Manila, a complaint for the recovery of the balance
of said notes, plus 12% interest thereon, 20% thereof
for attorney’s fees and costs, and/or to recover the trucks. Upon
plaintiff’s filing a bond, the court issued a writ of replevin and, by
virtue thereof, the sheriffs seized the 6 trucks which, after the
expiration of 5 days without defendant having filed a counterbond, were
turned over to plaintiff.

As there were several parts and accessories found missing on the
trucks, plaintiff filed a supplemental complaint which was later
amended.

In answer to the complaint, defendant admitted its indebtedness, but
claimed that the same had already been paid and, as a counterclaim, it
prayed for damages occasioned by plaintiff’s failure to supply the
necessary spare parts for the trucks to keep them in operation, and for
having seized the same. Plaintiff denied the latter claim by stating
that it had always available in stock all spare parts for said trucks.

The case was thereafter tried on January 4, 1957 bat before
defendants counsel had concluded with his cross-examination of
plaintiff’s first witness, Benedicto T. Sison, he moved for the
postponement of the hearing, in view of the possibility of an amicable
settlement of the case. On April 6, 1957, the parties submitted the
following:

“STIPULATION OF PACTS

* * * * * * *

“1. On or about March 26, 1954, defendant Baguio Bus Co., Inc. purchased from the plaintiff as per Exhibit A,

	One (1)	Reo Bus Chassis Engine No. 255-190159 Serial No. F12OG-511817
	One (1)	Reo Bus Chassis Engine No. 255-190718 Serial No. F12OG-511821

“2.
To cover part of the price thereof, defendant Bagnio Bus Co., Inc.
executed and delivered to the plaintiff a promissory note dated March
26, 1954, for the principal sum of P22,500.00 (Exhibit C) copied in
paragraph 8 of the first cause of action of the complaint and secured
by a chattel mortgage on the said vehicles (Exhibit B).

“3. On or about July 16, 1954, defendant Baguio Bus Co., Inc. purchased from the plaintiff as per Exhibit G.

	One (1)	Reo Bus Chassis Engine No. 255-192053 Serial No. F12OG-512386
	One (1)	Reo Bus Chassis Engine No. 255-193558 Serial No. F12OG-512388

“4.
To cover part of the price thereof, defendant Baguio Bus Co., Inc.
executed and delivered to the plaintiff a promissory note dated July
26, 1954, for the principal sum of P23,000.00 (Exhibit I) copied in
paragraph 3 of the second cause of action of the complaint and secured
by a chattel mortgage on the said vehicles, (Exhibit H).

“5. On or about July 26, 1954, defendant Baguio Bus Co., Inc. purchased from the plaintiff as per Exhibit D-

	One (1)	Reo Bus chassis, 206 1/2″ W.B. Engine No. 255-193565 Serial No. F120G-512392
	One (1)	Reo Bus Chassis, 206 1/2″ W.B. Engine No. 255-190721 Serial No. F120G-611824

“6.
To cover part of the price thereof, defendant Baguio Bus Co. Inc.
executed and. delivered to the plaintiff a promissory note dated July
30, 1954, for the principal sum of P23.000.00. (Exhibit E).

“7.
The six Reo trucks which were all new were accordingly delivered to the
said defendant as shown by their respective Delivery Receipts attached
hereto as Exhibits J, K. and L.

“8. That four (4) of said
trucks were provided by the defendant Baguio Bus Company with Steel bus
bodies and used by said defendant ate passenger buses in its
transportation business.

“9. On the promissory note of March
26, 1954, there is a balance due of P12,263.19 as of April 28, 1956; on
that of July 26, 1964, there is a balance due and unpaid in the amount
of P13,256.03 as of April 10, 1956; and on the promissory note of July
30, 1954, there is a balance due and unpaid in the amount of P11,985.15
as of April 20, 1956, as shown in the Statement attached hereto as
Exhibits M, N and O.

“10. The plaintiff desires to exercise the option to take back all the fcaid trucks and cancel the sales thereof.

“11.
In compliance with the writs of seizure issued in this case, the
sheriff and special sheriff appointed herein seized the said six Reo
trucks and turned them over to the plaintiff after the expiration of
the prescribed period of five days within which defendant may file a
counterbond as shown by the corresponding returns made by the Sheriff
and Special Sheriff appointed by the Court.

“12. That when
the said six (6) Reo trucks were delivered to the plaintiff, five (5)
of them had bus bodies as they were being used by the defendant Baguio
Bus Company as passenger buses while the remaining one had wooden
sidings as it was used as a TH truck, but when they were delivered by
the Sheriff to the plaintiff, the following parts were found missing: *
* *

“13. The total value of the missing parts amounts to Three Thousand Four Hundred Ninety and 06/100 Pesos (P3,490.06).

* * * * * * *

“Wherefore,
the parties hereby respectfully pray that judgment be rendered on the
evidence presented and on the foregoing Stipulation of Facts.”

On May 6, 1957, the court rendered a decision the dispositive part of which reads:

“Wherefore, judgment is hereby rendered in favor of
the plaintiff, Luneta Motor Company, and against the defendant Baguio
Bus Co., Inc., as follows:

“1. Declaring the plaintiff the
owner of the six (6) Reo trucks subject of the purchase agreements
between the said plaintiff and the defendant and cancelling such
purchase agreements; and

“2. Ordering the defendant Baguio
Bus Co., Inc., to return to the plaintiff the missing and/or damaged
parts specified in the foregoing ‘Stipulation of Facts’ or, in default
thereof, to pay their corresponding prices so stipulated or the total
sum of P3,490.06, with interest at the legal rate from January 12,
1957, until fully paid, without special pronouncement as to costs. * *
*.”

On May 24, 1957, plaintiff filed a motion to amend Paragraph 2 of the above-quoted dispositive part so as to read as follows:

“2. Ordering the defendant Baguio Bus Co., Inc. to
return to the plaintiff the missing and/or damaged parts specified in
the foregoing ‘Stipulation of Facts’, or in default thereof, to pay
their corresponding prices so stipulated or the total sum of P3,490.06,
with interest at the legal rate from January 12, 1957, until fully
paid, plus twenty per cent (20%) of P37,504.37, total of the
balance at the three (3) promissory notes, or P7,500.87 for attorney’s
fees, in addition to the costs of the suit.”

To this motion, defendant filed his opposition contending, inter alia,
that the aforequoted stipulation of facts does not provide for the
payment of attorney’s fees and costs by defendant. On June 6, 1957,
defendant on its part, filed a motion for reconsideration and/or new
trial, praying that the decision be reconsidered by eliminating or
deleting therefrom paragraph 2 thereof relating to the spare parts
and/or their value, which it is adjudged to return and/or pay to
plaintiff, which motion was duly opposed by plaintiff.

Resolving said motions, the court, on June 13, 1957, issued an order of this tenor:

“It appearing that the decision in this case was
rendered on the basis of the stipulation of facts submitted by the
parties, plaintiff’s motion to amend said decision and defendant’s
motion for reconsideration and/or new trial are hereby denied for lack
of merit.”

From the foregoing decision and order, both parties appealed to the
Court of Appeals, but said court, in its resolution of February 13,
1959, certified the case to us on the ground that it involves questions
of law.

Plaintiff-appellant claims that the lower court erred in not
awarding to it attorney’s fees and costs, despite the fact that
defendant-appellant admitted liability for the same in its answer to
the complaint; that plaintiff-appellant adduced evidence to prove the
same; that the stipulation of facts submitted by the parties included
defendant- appellant’s liability for the same; and that both parties,
in said stipulation, prayed for judgment based on the evidence
presented and the stipulated facts.

The contention is devoid of merit. It appears that
plaintiff-appellant, instead of exacting the fulfillment of
defendant-appellant’s obligation under the purchase agreements
(Exhibits A, D, and G) by demanding the payment of the promissory notes
(Exhs. C, F, and I), or foreclosing the chattel mortgages (Exhs. B, E,
and H) on the 6 trucks in question, elected to cancel said purchase
agreements (Exhs. A, D, and G) and recover the possession of said
trucks from defendant-appellant.^[1]
Having chosen the latter course, it could not legally demand compliance
by defendant-appellant of its undertaking to pay attorney’s fees and
costs in case of default under said promissory notes and chattel
mortgages, for plaintiff-appellant has, in effect, waived its rights
under said instruments. Furthermore, under the terms of the purchase
agreements (Exhs. A, D, and G), defendant-appellant had forfeited all
payments (amounting to P44,570.56) it had made to plaintiff-appellant,
due to its default in the fulfillment of its obligations thereunder. To
require defendant-appellant to pay the attorney’s fees and costs in the
amount demanded by plaintiff-appellant (P7,500.87 or 20% of the unpaid balance of the promissory notes) would, in our opinion, be highly unconscionable and oppressive.

Plaintiff-appellant is, however, entitled to attorney’s fees of a
lesser amount, which we fix at P500.00, under the provisions of Article
2208 (2) of the Civil Code, inasmuch as defendant-appellant’s default
had caused it to litigate and incur expenses, in order to protect its
(plaintiff-appellant’s) interest, and to costs, by virtue of the
provisions of Section 1, Rule 131, of the Rules of Court, as it is the
prevailing party in the case.

Defendant-appellant, on its part, claims that the lower court erred
in ordering it to return to plaintiff-appellant the missing and/or
damaged’ spare parts of the trucks in question, as specified in the
stipulation of facts, or in default thereof, to pay their corresponding
prices as fixed in the stipulation, with legal interest from January
12, 1957, until fully paid.

There is some merit in the contention. True it is, that as
plaintiff-appellant has elected to cancel the purchase agreements
(Exhs. A, D, and G) and recover the possession of the trucks in
question from defendant-appellant, it is legally (Art. 1385, Civil
Code) entitled to the return of said trucks including all parts they
had at the time of their sale, but we have not overlooked the fact that
when said trucks were returned to plaintiff-appellant, 5 of them were
already equipped with steel bus bodies, for which defendant-appellant
most probably have spent quite a sum. The value of said bus bodies
should have, therefore, been compensated with the value of the missing
or damaged parts of said trucks (P3,490.06), with the result that
defendant-appellant should not have been required by the lower court to
return the missing or damaged parts of said trucks, or in default
thereof, pay their value with legal interest.

Defendant-appellant next contends that the purchase agreements
(Exhs. A, D, and G) were novated by the promissory notes (Exhs. C, F,
and I) and by the chattel mortgages (Exhs. B, E, and H) and,
consequently, plaintiff-appellant’s action should have been based on
the latter instruments.

To this contention we can not agree. Novation is never presumed, and
in order that an obligation may be extinguished by another which
substitutes it, it shall be necessary that it is so declared expressly,
or that the old and the new obligations be incompatible in every
respect (Art. 1292, Civil Code; Ramos vs. Gibbon, 67 Phil., 371; Garcia vs.
Khu Yek Chiong, et al., 65 Phil., 466). In the instant case, the
parties never agreed to, nor intended, a novation of the purchase
agreements (Exhs. A, D, and G). On the contrary, they expressly
stipulated that the installment payments on the purchase price of the
trucks in question shall be “in accordance with the terms of the
seller’s usual form of Chattel Mortgage and notes (Exhs. B, E, and H)
which the purchaser agrees to execute prior to the delivery of the
properties purchased” (See last portion of the first paragraph of the
Purchase Agreements Exhs. A, D, and G). Much less do we find any
incompatibility between the purchase agreements (Exhs. A, D, and G) and
the promissory notes (Exhs. B, E, and H) and the chattel mortgages
(Exhs. C, F, and I), in the absence of which, novation does not take
place. They are constitutive elements of a single transaction of sale
on installments, with a chattel mortgage—complementary and
supplementary to one another—the purchase agreements (Exhs. A, D, and
G) evidencing said sale on installment of the 6 trucks in question, the
promissory notes (Exhs. B, E, and H) evidencing the unpaid balance of
the purchase price of the same and the chattel mortgages (Exhs. C, F,
and I), guaranteeing payment of said unpaid balance.

Defendant-appellant, likewise, claims that by requiring it to
execute the chattel mortgages on the 6 trucks in question,
plaintiff-appellant is deemed to have admitted the transfer of the
ownership of the same to defendant-appellant. Conceding this to be
true, still the action of plaintiff and the judgment of the trial court
find sanction in Article 1484(2) of the Civil Code.

For all the foregoing, the judgment of the lower court is affirmed
in so far as it declares plaintiff-appellant the owner of the 6 trucks
in question and cancels the purchase agreements (Exhs. A, D, and G),
and reversed, in so far as it (1) denies the award of attorney’s fees
and costs to plaintiff-appellant (which fees we have fixed at P500.00),
and (2) orders defendant-appellant to return to plaintiff- appellant
the missing and/or damaged parts of said trucks, or pay their value as
specified in the Stipulation of Facts, with legal interest until fully
paid. Without pronouncement as to costs in this instance. So ordered.

Paras, C. J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., and Gutierrez David, JJ., concur.

Montemayor, J., took no part.

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^[1] See Art. 1484, Civil Code.