G.R. No. L-15157; June 30, 1960
LUNETA MOTOR COMPANY, plaintiff-appellant, vs. BAGUIO BUS COMPANY, INC., defendant-appellant.

FACTS

Defendant Baguio Bus Company, Inc. purchased six (6) new REO trucks from plaintiff Luneta Motor Company on three separate occasions under installment sale agreements (Exhibits A, D, and G). The unpaid balances were covered by promissory notes (Exhibits C, F, and I) payable in 24 monthly installments with 12% annual interest and a stipulation for an additional 20% of the amount due as attorney’s fees in case of default. To secure payment, defendant mortgaged the trucks to plaintiff via chattel mortgages (Exhibits B, E, and H). Defendant defaulted on the notes. Plaintiff filed a complaint for recovery of the balance, interest, attorney’s fees, and costs, and/or for recovery of the trucks. A writ of replevin was issued, and the trucks were seized and delivered to plaintiff after defendant failed to file a counterbond. Plaintiff later filed a supplemental complaint alleging missing parts from the trucks. Defendant, in its answer, admitted indebtedness but claimed it had been paid and filed a counterclaim for damages. The parties later submitted a Stipulation of Facts confirming the transactions, the delivery of the trucks, their use by defendant as passenger buses, the outstanding balances on the notes, plaintiff’s desire to take back the trucks and cancel the sales, the seizure via replevin, and the missing parts valued at P3,490.06. The trial court rendered a decision based on the stipulation, declaring plaintiff the owner of the trucks, cancelling the purchase agreements, and ordering defendant to return the missing parts or pay their value. Both parties filed motions: plaintiff to amend the decision to include attorney’s fees and costs, and defendant for reconsideration to delete the order concerning the missing parts. The trial court denied both motions. Both parties appealed.

ISSUE

1. Whether the trial court erred in not awarding attorney’s fees and costs to plaintiff-appellant.
2. Whether the trial court erred in ordering defendant-appellant to return the missing parts or pay their value.

RULING

1. On Attorney’s Fees and Costs: The Supreme Court held that the trial court correctly denied the award of attorney’s fees as stipulated in the promissory notes. Plaintiff, by electing to cancel the purchase agreements and recover the trucks via replevin (an action sanctioned under Article 1484(2) of the Civil Code), effectively waived its right to demand payment of the unpaid balances under the notes. Since the obligation to pay attorney’s fees was contingent on default under the notes, and plaintiff chose the remedy of cancellation and recovery of the property instead of enforcing the notes, it could not legally demand the attorney’s fees stipulated therein. However, the Supreme Court, exercising its discretion, awarded plaintiff attorney’s fees in the amount of P500.00.
2. On the Missing Parts: The Supreme Court reversed the portion of the trial court’s decision ordering defendant to return the missing parts or pay their value. The Court found that by requiring the execution of chattel mortgages on the trucks, plaintiff admitted the transfer of ownership to defendant. Consequently, when plaintiff availed itself of the remedy under Article 1484(2) of the Civil Code (cancelling the sale and recovering the property), it was only entitled to recover the property in the condition it was in at the time of recovery. Plaintiff could not compel defendant to account for missing parts or accessories that may have been removed or lost while the trucks were in defendant’s possession as owner.
DISPOSITIVE PORTION:
The judgment of the lower court was: (1) AFFIRMED insofar as it declares plaintiff-appellant the owner of the six trucks and cancels the purchase agreements; and (2) REVERSED insofar as it (a) denies the award of attorney’s fees (fixed by the Supreme Court at P500.00) and (b) orders defendant-appellant to return the missing/damaged parts or pay their value. No costs were awarded in the instance of the Supreme Court appeal.