GR 147594; (March, 2007) (Digest)
G.R. No. 147594 . March 7, 2007.
Metro Manila Transit Corporation, Petitioner, vs. D.M. Consortium, Inc., Respondent.
FACTS
Petitioner Metro Manila Transit Corporation (MMTC) and respondent D.M. Consortium, Inc. (DMCI) entered into a lease-purchase agreement (LPA) for 228 buses under a government assistance program. The LPA stipulated that title remained with MMTC until full payment, and allowed repossession upon default for three consecutive months. MMTC repossessed the buses in December 1989, citing DMCI’s default. Concurrently, by virtue of Memorandum Order No. 267 issued during a national emergency, the government took over DMCI’s operations, with a directive for just compensation. DMCI secured injunctive relief from the Regional Trial Court (RTC) to prevent MMTC’s public auction of the buses. The RTC ruled for DMCI, finding no valid default to justify repossession, as DMCI had made substantial payments exceeding the original obligation, and ordered the buses’ return.
ISSUE
Whether MMTC lawfully repossessed the buses under the LPA, and if not, what is the proper remedy for DMCI given the buses’ deteriorated condition.
RULING
The Supreme Court denied MMTC’s petition and affirmed the Court of Appeals (CA) with modification. The Court held that MMTC’s repossession was invalid. The LPA, though denominated a lease, was essentially a contract of sale on installment governed by Article 1484 of the Civil Code. Under this provision, the seller-vendor (MMTC) has three mutually exclusive remedies upon default: exact fulfillment, cancel the sale, or foreclose. MMTC’s act of unilaterally repossessing the buses and attempting to sell them at public auction constituted a cancellation of the sale. Pursuant to Article 1484, having chosen this remedy, MMTC forfeited any further action to recover the unpaid balance. Consequently, it could not retain the buses and demand payment. Since the repossession was unlawful and the buses could no longer be returned in their original state due to deterioration, the CA correctly held that DMCI was entitled to the value of the buses as of the date of the illegal takeover. The case was remanded to the trial court for the determination of this value. The award of damages was deleted as the taking was not attended by bad faith.