G.R. No. 61043 – DELTA MOTOR SALES CORPORATION, plaintiff-appellee, vs. NIU KIM DUAN and CHAN FUE ENG, defendants-appellants.
NOCON, J.
Rule Synopsis
Forfeiture clauses in installments sales were valid, so long as they are not unconscionable. The remedied provided for under Art. 1484 were alternative, not cumulative.
Facts
Niu Kim and Chan Fue purchased 3 air conditioners from Delta Motors for about P19k via a Deed of Conditional Sale. Payable: down payment of P774, the balance in 24 installments. The appellants-buyer executed a PN to secure the payment of the balance. They were able to pay 7 monthly installments, after which, they defaulted in paying at least two installments. For such, Delta repossessed the air conditioners through the writ of replevin. The contract between the parties was also declared judicially rescinded. Despite this, however, Delta still sought to recover the unpaid balance from the sale of about P7k. The appellants refused to pay.
Thus, Delta brought an action for the collection of said balance.
The appellants raised the issue of the validity of the Deed of Conditional sale for being contrary to law, morals, good custom, public order or public policy. Specifically pars. 5 and 7 thereof which according to them were iniquitous. Par. 5, in essence provides: in case of buyer’s failure to comply with the term and conditions of the sale, the sale will automatically become null and void; installments paid will be forfeited, i.e. treated as rentals; Delta may repossess the property without liability for trespass. Whereas, par. 7 provides: obligates the buyers to deliver the property to seller in case of rescission; to bear costs of suit by the seller in case one be brought; pay penalty of 25% of the balance.
The trial court ruled in favor of Delta Motors, after declaring the Deed of Conditional Sale between the parties rescinded. The CA elevated the case to SC. The SC reversed — Niu Kim Duan not liable.
Issues
- Was Delta Motors justified in retaining the down payment and installments paid by the appellants, and treating the same as rental for the use of the property?
- May Delta still demand exact fulfillment of the appellant’s obligation to pay the balance under the contract, notwithstanding its repossession of the air conditioners and cancellation of the sale?
Ruling and Discussion
- Yes. Delta Motors was justified in retaining the down payment and installments paid by the appellants, and treating the same as rental for the use of the property.
A stipulation in a contract that the installments paid shall not be returned to the vendee is valid insofar as the same may not be unconscionable under the circumstances is sanctioned by Article 1486 of the New Civil Code.
Under the circumstances, the treatment of the installment payments as rentals cannot be said to be unconscionable. The appellants paid for 7 monthly installments while they where able to use the air conditioners for 22 months. Thus, in effect, they were able to use the same for 15 months rent-free to the prejudice of Delta. - No. Delta may no longer demand exact fulfillment of the appellant’s obligation to pay the balance under the contract, notwithstanding its repossession of the air conditioners and cancellation of the sale.
The 3 remedies provided for under Art. 1484, i.e. exact fulfillment, cancellation of the sale, and foreclosure of the chattel mortgage, are alternative and NOT cumulative. If the creditor chooses one remedy, he cannot avail himself of the other two.
Delta Motors was able to repossess the air conditioners by virtue of the writ of replevin pursuant to pars. 5 and 7 of the Deed of Conditional Sale upon the appellant’s failure to pay at least two months’ installment. It also obtained judicial rescission of the said contract. Thus, by electing the second remedy under Art. 1484, Delta is precluded from exercising the other alternative remedies thereon. It is barred from exacting payment from appellants. It cannot have its cake and eat it too.
Dispositive
Judgment set aside.