GR 110597; (May, 1996) (Digest)
G.R. No. 110597. May 8, 1996. SERVICEWIDE SPECIALIST, INCORPORATED, petitioner, vs. THE HON. COURT OF APPEALS, RICARDO TRINIDAD and ELISA TRINIDAD, respondents.
FACTS
Private respondents Ricardo and Elisa Trinidad purchased a car from Autoworld Sales Corporation, executing a promissory note and a chattel mortgage to secure payment. Autoworld assigned these instruments to Filinvest Credit Corporation, with notice to the Trinidads. On April 15, 1984, the Trinidads delivered seventeen checks to Filinvest in full payment of the car, for which they received proper receipts and all ownership documents. They subsequently used the car as a taxi.
Later, Filinvest assigned its rights to petitioner Servicewide Specialist. Petitioner then demanded payment from the Trinidads for two allegedly unpaid installments and for insurance premiums that Filinvest had paid to Perla Compania de Seguros without the Trinidads’ knowledge. The Trinidads refused, prompting petitioner to file an action for replevin and damages.
ISSUE
Whether petitioner, as assignee, could validly apply the installment payments made by the Trinidads for the car to the payment of insurance premiums without prior notice to them.
RULING
The Supreme Court ruled in favor of the Trinidads, affirming the dismissal of the complaint. The chattel mortgage contract stipulated that if the mortgagor defaults on effecting insurance, the mortgagee may, at its option, obtain insurance for the mortgagor’s account. Any money so disbursed “shall be added to the principal indebtedness.” The Court held this clause means the insurance premium becomes an additional debt secured by the mortgage; it does not authorize the unilateral conversion of payments already allocated and accepted for the principal obligation.
Critically, the Trinidads had fully paid the principal indebtedness. Filinvest accepted their checks as full payment, issued receipts, and released the documents. Filinvest’s subsequent act of paying for insurance renewals without notifying the Trinidads, and then applying their earlier car payments to cover these premiums, was invalid. The assignee-petitioner stepped into Filinvest’s shoes and acquired no better rights. Since the Trinidads had no knowledge of the insurance payments or any outstanding obligation for them, petitioner’s demand and lawsuit were unjustified. However, the Court deleted the award of attorney’s fees to the Trinidads, finding that petitioner’s action, though erroneous, was not filed in bad faith but under a sincere belief in its merit.