FILIPINAS INVESTMENT & FINANCE CORPORATION, 

plaintiff-appellant, vs.
JULIAN R. VITUG, JR. and SUPREME SALES & DEVELOPMENT CORPORATION, defendants-
appellees.

Facts: Defendant Supreme Sales & Development Corporation, with notice to defendant Julian R. Vitug,
Jr. negotiated in favor of (endorsed and delivered to) plaintiff a promissory note on a with recourse basis
whereby in case of the failure and/or refusal of the maker thereof, defendant Julian R. Vitug, Jr. to pay the
obligation under the said promissory note, plaintiff shall have the right to recourse against the said
defendant corporation. The defendant corporation is liable to plaintiff for the entire balance of the
obligation covered by the promissory note, and secured by the chattel mortgage, as a general endorser of
the promissory note, and assignor of the chattel mortgage on a with- recourse basis. But should plaintiff
be able to sell the above-described motor vehicle, then the said defendant corporation is liable to the
plaintiff for the payment of the balance of the obligation after applying thereto the proceeds of the sale of
the said vehicle.

The defendant, Julian R. Vitug, executed and delivered to appellee promissory note in the amount of
P14,605.00 payable in monthly installments according to a schedule of payments; the payment of the
aforesaid amount which was the purchase price of a motor vehicle, a 4-door Consul sedan, bought by
said defendant from appellee, was secured by a chattel mortgage over such automobile; on the same
day, appellee negotiated the above-mentioned promissory note in favor of appellant Filipinas Investment
& Finance Corporation, assigning thereto all its rights, title and interests to the same,  the assignment
including the right of recourse against appellee; defendant Vitug defaulted in the payment of part of the
installment which fell due on January 6, 1965, as well as the subsequent three consecutive monthly
installments which he was supposed to have paid on February 6, March 6 and April 6, 1965; there being a
provision in the aforesaid promissory note and chattel mortgage that failure to pay the installments due
would result in the entire obligation becoming due and demandable, appellant demanded from appellee
the payment of such outstanding balance; in turn, appellee "authorized (appellant) to take such action as
may be necessary to enable (it) to take possession of the ... motor vehicle." Pursuant to such authority,
appellant secured possession of the mortgaged vehicle by means of a writ of replevin duly obtained from
the court, preparatory to the foreclosure of the mortgage, but said writ became unnecessary because
upon learning of the same, defendant Vitug voluntarily surrendered the car to appellant; thereafter, the
said car was sold at public auction, but the proceeds still left a deficiency of P8,349.35, plus interest of
12% per annum from April 21, 1965;

APPELANT APPELEE
sought to recover from defendant-appellee appellee filed an urgent motion to dismiss on the
Supreme Sales & Development Corporation the ground, inter alia, that under Article 1484 of the
deficiency that resulted after it had foreclosed the Civil Code of the Philippines, which particular
chattel mortgage on and sold at public auction, provision is otherwise known as the Recto Law,
the car of the other defendant, Julian Vitug, Jr. appellant has no cause of action against appellee.
who had failed to pay to appellee installments due
on the promissory note representing the purchase ART. 1484. In a contract of sale of personal
price of said car which he had bought from the property the price of which is payable in
same, appellant being the assignee of appellee of installments, the vendor may exercise any of the
its rights in the said promissory note. following remedies: (1) Exact fulfillment of the
obligation should the vendee fail to pay; (2)
Cancel the sale, should the vendee's failure to
pay cover two or more installments; (3) Foreclose
the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to
pay cover two or more installments. In this case,
he shall have no further action against the
purchaser to recover any unpaid balance of the
price. Any agreement to the contrary shall be void.
CFI: found the APPELLANT’S ground to be meritorious and the amended complaint was dismissed as to
appellee Supreme Sales & Development Corporation.

Appellant filed a motion for reconsideration but this was denied.

Issue: whether or not this provision regarding recourse contained in the agreement between appellant
and appellee violates the Recto Law which declares null and void any agreement in contravention thereof.
We do not believe that it does.

SC: According to the facts, there was a definite and clear agreement between appellant and appellee that
should appellant fail to secure full recovery from defendant Vitug, the right was reserved to appellant to
seek recourse for the deficiency against appellee.

the transaction between appellant and appellee was purely an ordinary discounting transaction whereby
the promissory note executed by defendant Vitug was negotiated by appellee in favor of appellant for a
valuable consideration at a certain discount, accompanied by an assignment also of the chattel mortgage
executed by said defendant to secure the payment of his promissory note and with the express stipulation
that should there be any deficiency, recourse could be had against appellee.

Under the Recto Law, what Congress seeks to protect are only the buyers on installment who more often
than not have been victimized by sellers who, before the enactment of this law, succeeded in unjustly
enriching themselves at the expense of the buyers because aside from recovering the goods sold, upon
default of the buyer in the payment of two installments, still retained for themselves all amounts already
paid, in addition, furthermore, to other damages, such as attorney's fees, and costs. Surely, Congress
could not have intended to impair and much less do away with the right of the seller to make commercial
use of his credit against the buyer, provided said buyer is not burdened beyond what this law allows

Court disagrees with the Appellee. The very fact that the assignee was given the stipulated right of
recourse against the assignor negates the idea that the parties contemplated to limit the recovery of the
assignee to only the proceeds of the mortgage sale.

ACCORDINGLY, the order of dismissal of the lower court is reversed and this case is ordered remanded
to the lower court for further proceedings, with costs against appellee Supreme Sales & Development
Corporation.