FILIPINAS INVESTMENT & FINANCE CORPORATION, PLAINTIFF-APPELLANT, VS. JULIAN R. VITUG, JR. AND SUPREME SALES & DEVELOPMENT CORPORATION, DEFENDANTS-APPELLEES.

Appeal from an order of dismissal by the Court of First Instance
of Manila, in
its Civil Case No. 60915, entitled Filipinas Investment & Finance
Corporation vs.
Julian R. Vitug, Jr. and Supreme Sales &
Development Corporation, of the amended complaint of July 16, 1965 of
plaintiff-appellant Filipinas Investment & Finance Corporation whereby it
sought to recover from defendant-appellee Supreme
Sales & Development Corporation the de­ficiency that resulted after it had
foreclosed the chat­tel mortgage on and sold at public auction, the car of the other
defendant, Julian Vitug, Jr. who had failed to pay to
appellee installments due on the promissory note
representing the purchase price of said car which he had bought from the same,
appellant being the assignee of appellee of its
rights in the said promissory note.

The
material allegations in appellant’s amended com­plaint are:

The
defendant, Julian R. Vitug, Jr., executed and de­livered
to appellee a promissory note in the amount of
P14,605.00 payable in monthly installments according to a schedule of payments;
the payment of the aforesaid amount which was the purchase price of a motor
vehicle, a 4-door Consul sedan, bought by said defendant from appellee, was secured by a chattel mortgage over such
automobile; on the same day, appellee negotiated the
above-mentioned promis­sory note in favor of appellant Filipinas Investment
& Finance Corporation, assigning thereto all its rights, title and
interests to the same, the assignment including the right of recourse against
appellee; defendant Vitug
defaulted in the payment of part of the installment which fell due on January
6, 1965, as well as the subsequent three consecutive monthly installments which he was sup­posed to have paid on
February 6, March 6 and April 6, 1965; there being a provision in the aforesaid
promissory note and chattel mortgage that failure to pay the install­ments due
would result in the entire obligation becoming due and demandable, appellant
demanded from appellee the payment of such
outstanding balance; in turn, appellee
“authorized (appellant) to take such action as may be ne­cessary to enable
(it) to take possession of the x x x motor
vehicle.” Pursuant to such authority, appellant secured possession of the
mortgaged vehicle by means of a writ of replevin duly obtained from the
court, preparatory to the foreclosure of the mortgage, but said writ became
unnecessary because upon learning of the same, defendant Vitug
voluntarily surrendered the car to appellant; there­after, the said car was
sold at public auction, but the proceeds still left a deficiency of P8,349.35,
plus in­terest of 12% per annum from April 21, 1965; and appellant, the above
foreclosure and sale notwithstanding, would hold appellee
liable for the payment of such outstanding balance, plus attorney’s fees and
costs.

On
August 4, 1965, appellee filed an urgent motion to dismiss on the ground, inter
alia that under Article 1484 of the Civil Code
of the Philippines, which particu­lar
provision is otherwise known as the Recto Law, appel­lant has no cause of
action against appellee.  Said pro­vision is as follows:

“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.”

In its order of August
30, 1965, subject of this appeal, the lower court found the aforesaid
ground to be meritorious and, as already stated, the amended complaint was
dismissed as to appellee Supreme Sales & Development Corporation.  According to the order of dismissal:

“It is undisputed in the instant case that the amount of
P14,605.00 mentioned as consideration in both the promissory note and the
chattel mort­gage in the instant case represents the selling price of one(1)
automobile New Ford Consul 315 4-door Sedan,
pay­able in the installments mentioned in said documents.  Under pars. 5 and 9 of the amended complaint,
the writ of replevin was obtained in the instant case
for purposes of foreclosure of mortgage. 
In applying for a writ of replevin, the
plaintiff thereby made his choice,
namely, to foreclose the mortgage covering said automobile; and having accepted
said automobile from defendant Julian R. Vitug, Jr., what remains is for the plaintiff
to sell said automobile through either a judicial
or an extrajudicial fore­closure of said mortgage, without benefit of a
deficiency judgment or deficiency collection x x x should the
proceeds of the foreclosure sale be less than the balance of the installment
sale price of said automo­bile due and collectible.”

On September 23, 1965,
appellant filed a motion for reconsideration but this was denied on October 26, 1965, hence, this
appeal.

The principal error assigned by appellant has refer­ence to the
applicability of Art. 1484 of the Civil Code, as amended, to the facts of this
case.  Appellant main­tains that:

“II

THE TRIAL COURT ERRED IN HOLDING THAT ARTICLE 1484 OF THE CIVIL
CODE OF THE PHILIPPINES
IS APPLICABLE TO THE TRANS­ACTION BETWEEN PLAINTIFF-APPELLANT AND
DEFENDANT-APPELLEE.”

Under the facts alleged in the amended
complaint which are deemed admitted by the motion to dismiss,^[1]
this assign­ment of error must be sustained.

The specific allegations in the amended complaint which have
material bearing to the issue herein are:

“4.  On
November 4, 1964, defendant Supreme
Sales & Development Corporation, with notice to defendant Julian
R. Vitug, Jr. negotiated in favor of (endorsed and
delivered to) plaintiff the above-men­tioned promissory note, Annex
“A”, on a with-recourse basis whereby in case of the failure and/or
refusal of the maker thereof, defendant Julian R. Vitug,
Jr. to pay the obligation under the said promissory note, plaintiff shall have
the right of recourse against the said defendant corporation.

“On the same date, said defendant corporation, with notice to defendant  Julian R. Vitug,
Jr., assigned to plaintiff its rights, title, and interests to the
aforesaid promissory note and chattel mortgage, Annexes “A”
and “B” hereof, as shown by the Deed of Assignment executed by de­fendant
Supreme Sales & Development Corporation in favor of plaintiffs, a copy of which
is hereto attached as Annex “C” and made an integral part hereof, which
assignment is also subject to the right of re­course above-mentioned;

“13.  The defendant corporation is liable to
plaintiff for the en­tire balance of the obligation co­vered by the promissory
note, Annex “A”, and secured by the chattel mort­gage, Annex
“B”, as a general endor­ser of the promissory note, Annex “A”, and assignor of
the chattel mortgage on a with-recourse basis. 
But should plaintiff be able to sell the above-described motor vehicle,
then the said defendant corporation is liable to the plaintiff for the payment
of the bal­ance of the obligation after applying thereto the proceeds of the
sale of the said vehicle.” (Record on Appeal, pp. 12 and 15.)

Thus it can be seen that the assignment made by appel­lee to appellant of the promissory note and mortgage
of de­fendant Vitug was on a with-recourse
basis.  In other words, there was a
definite and clear agreement between appellant and appellee
that should appellant fail to secure full re­covery from defendant Vitug, the right was reserved to appellant to seek recourse
for the deficiency against appel­lee. Accordingly,
the question for resolution by the Court now is whether or not this provision
regarding recourse con­tained in the agreement between appellant and appellee violates the Recto Law which declares null and
void any agreement in contravention thereof. 
We do not believe that it does.

As pointed out in appellant’s brief, the transaction between
appellant and appellee was purely an ordinary dis­counting
transaction whereby the promissory note executed by defendant Vitug was negotiated by appellee
in favor of appellant for a valuable consideration at a certain discount,
accompanied by an assignment also of the chattel mortgage executed by said
defendant to secure the payment of his promissory note and with the express
stipulation that should there be any deficiency, recourse could be had against appellee.  Stated
otherwise, the remedy pre­sently being sought is not against the buyer of the
car or the defendant Vitug but against the seller,
independ­ent of whether or not such seller may have a right of re­covery
against the buyer, which, in this case, he does not have under the Recto
Law.  It is clear to Us, on the other hand,
that under said law, what Congress seeks to protect are only the buyers on
installment who more often than not have been victimized by sellers who, before
the enactment of this law, succeeded in unjustly enriching themselves at the
expense of the buyers because aside from recovering the goods sold, upon
default of the buyer in the payment of two installments, still retained for
themselves all amounts already paid, in addition, furthermore, to other
damages, such as attorney’s fees,
and costs.  Surely, Con­gress could not
have intended to impair and much less do away with the right of the seller to
make commercial use of his credit against the buyer, provided said buyer is not
burdened beyond what this law allows.

We are not unmindful that in the case of Cruz, et al. vs. the
same Filipinas Investment & Finance Corporation, L-24772, May 27, 1968, 23
SCRA 791, this Court broadened the scope of the Recto Law beyond its letter and
held that within its spirit, a seller of goods on installment does not have any
right of action against a third party who, in addition to the buyer’s mortgage
of the goods sold, fur­nishes additional security for the payment of said
install­ments or the purchase price of said goods.  In that case, it was held:

“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 purchase 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 over-turned.”

As can be seen, that case of Cruz was entirely dif­ferent from
this one at bar.  In that case, herein
appel­lant Filipinas Investment & Finance Corporation was try­ing to
recover from the guarantor of the buyer, whereas in the present case, it is precisely stipulated in effect, that the
Filipinas Investment & Finance Corporation had a right of recourse against
the seller should the buyer fail to pay the assigned credit in full.

It
is the contention of appellee that since what were
assigned to appellant were only whatever rights it had against the buyer, it
should follow that inasmuch as appel­lee has no right
to recover from the defendant beyond the proceeds of the foreclosure sale, the
appellant, as assignee, should also have no right to recover any
deficiency.  We do not view the matter
that way.  The very fact that the as­signee
was given the stipulated right of recourse against the assignor negates the
idea that the parties contemplated to limit the recovery of the assignee to
only the proceeds of the mortgage sale.

ACCORDINGLY, the order of dismissal of the lower court is
reversed and this case is ordered remanded to the lower court for further
proceedings, with costs against appellee Supreme
Sales & Development Corporation.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Ruiz
Castro, Capistrano, and Teehankee, JJ., concur.

Dizon and
Fernando, JJ., did not take part.

^[1]
Evidence seems to have been presented by appellee and
admitted by the trial court in connection with the motion to dismiss.  While it is obvious that said evidence is
relevant, the same cannot be taken into account, since the motion to dismiss is
based on the ground that the amended complaint states no cause of action and,
therefore, all material facts alleged in the complaint must be deemed admitted
for purposes of said motion.