G.R. No. L-41555 July 27, 1977
INDUSTRIAL FINANCE CORPORATION, petitioner, vs. CASTOR TOBIAS, respondent.

FACTS

Respondent Castor Tobias purchased a Dodge truck on installment from Leelin Motors, Inc., executing a promissory note and a chattel mortgage to secure payment. Leelin Motors subsequently assigned the note and mortgage to petitioner Industrial Finance Corporation. After Tobias defaulted on several installments, the petitioner’s counsel sent a letter dated May 14, 1970, demanding payment of the outstanding balance or the surrender of the truck. In his reply dated May 27, 1970, Tobias voluntarily offered to surrender the truck, disclosing that it had been in an accident and was under repair at Leelin Motors, with whose work he was dissatisfied. The petitioner, upon learning of the accident, refused to take possession of the damaged vehicle. It later filed an action in the Court of First Instance to recover the unpaid balance of the purchase price.
The trial court dismissed the complaint, ruling that Tobias had complied with the demand by offering to surrender the truck. The Court of Appeals affirmed the dismissal but modified the judgment by ordering Tobias to pay the cost of repairs. The petitioner appealed, arguing that it retained the right to exact fulfillment of the obligation under Article 1484 of the Civil Code, as it had not pursued the remedies of cancellation or foreclosure.

ISSUE

Whether the petitioner, as an unpaid vendor, is barred from exacting fulfillment of the obligation to pay the balance after demanding and receiving an offer to surrender the mortgaged property.

RULING

No. The Supreme Court set aside the decisions of the lower courts and ordered respondent Tobias to pay the balance of the purchase price. The legal logic hinges on the application of Article 1484 of the Civil Code, which governs installment sales of personal property. The provision grants the vendor three alternative, not cumulative, remedies upon the vendee’s default in two or more installments: exact fulfillment of the obligation, cancellation of the sale, or foreclosure of the chattel mortgage. The exercise of one remedy precludes the others.
In this case, the petitioner did not effectively exercise the remedy of foreclosure. A mere demand for surrender of the property is not equivalent to foreclosure, which requires a specific judicial or extra-judicial process. The petitioner’s letter was a conditional demand for payment or surrender, not an irrevocable election to foreclose. Furthermore, the surrender offered by Tobias was ineffectual because the truck was in the custody of Leelin Motors, which held a mechanic’s lien, and the vehicle was in a damaged state unsatisfactory to the petitioner. The petitioner was therefore justified in refusing the surrender and in pursuing the remedy of exacting fulfillment, which it remained free to choose since it had not previously cancelled the sale or foreclosed the mortgage. The Court cited the precedent of Radiowealth Inc. vs. Lavin, which upheld a vendor’s right to collect the unpaid balance after a similar demand, as the remedies under Article 1484 are alternative.