Evangelista, Ma. Clara G.

Sales and Lease

2-C

SALE OF MOVABLES ON INSTALLMENT (1484-1486)

1484: In a contract of sale of personal property the price of which is payable in installments, the vendor
may exercise any of the 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.
1485: The preceding article shall be applied to contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.
1486: In the case referred to in two preceding articles, a stipulation that the installments or rents paid
shall not be returned to the vendee or lessee shall be valid insofar as the same may not be
unconscionable under the circumstances.
REMEDIES OF AN UNPAID SELLER:
1. Exact fulfillment should the buyer fail to pay [Specific Performance]
2. Cancel the sale if buyer fails to pay two (2) or more installments [Rescission]
3. Foreclose on chattel mortgage if buyer fails to pay two (2) or more installments
APPLICABILITY:

The remedies apply only to sales of personal property in installments.

Sale on Installment is defined as payment by several partial payments in smaller amounts.

Sales of personal property in straight terms, where after the payment of an initial sum, the
entirely of the balance paid is at the specific time.

NATURE:

The three (3) remedies are ALTERNATIVE, not CUMULATIVE nor SIMULTANEOUSLY pursued.

The election of one remedy is a waiver of the right to resort to the other remedies.

and incorporates the provisions of Act No. 4122. • “unpaid balance owing” to “unpaid balance of the price” PURPOSE: • To remedy the abuses committed in connection with the foreclosure of chattel mortgages and to prevent the mortgagees from seizing the mortgage property. known as the Installment Sales Law or the Recto Law. buying it at a foreclosure sale for a low price and then bringing a suit for a deficiency judgment against the mortgagor. he can no longer seek for rescission nor foreclosure of the chattel mortgage constituted on the thing sold. if the latter should become impossible. SPECIFIC PERFORMANCE GR: When the seller has chosen specific performance. 4122) • Article 1484 of the Civil Code provides for the remedies of a seller in contracts of sale of personal property by installments. the vendor may avail himself of another remedy. RESCISSION: GR: When the remedy of rescission is chose. vs Ramirez) • A judgment in an action for specific performance may be executed on all personal and real properties of the buyer which are not exempt from execution and which are sufficient to satisfy such judgment. there is correlative obligation on the part of the vendor to restitute the vendee for whatever amount the latter has paid. Xxx EFFECTS: • Vendor is barred from choosing either rescission or foreclosure (X 1191) • One may have recovery of deficiency (Industrial Finance Corp.• If the remedy first chosen was not completed or not fully exercised as when there was voluntary desistance. which then amended Article 1454-A of the Civil Code of 1889. X When there is a stipulation that installments paid are forfeited. X Article 1191 xxx He may also seek rescission. RECTO LAW (ACT NO. even after he has chosen fulfillment. Such stipulation is valid as long as the same may not be unconscionable under the circumstances [1486] a) Notice of Rescission was sent b) Takes possession of the subject matter of sale .

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. d) Mutual Restitution Article 1385. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. 23 SCRA 791) c) Other Securities via Extrajudicial Action . Inc... GR No. FORECLOSURE: • At the time of the actual sale of the subject property at the public auction pursuant to the foreclosure proceedings (Manila Motor Co. 106418) b) Securities given by third party persons or the payment of the price. 3 SCRA 445) EFFECTS: a) Article 1484 provides that the barring effect on the recovery of balance is applicable only when the remedy of foreclosure is chosen. Inc vs Sapinoso. the same implicit from the nature of the remedy which is mutual restitution (Nonato vs IAC. Inc.. De Quaimbao vs Manila Motor C. c) The vendor may recover damages for breach of contract. vs Fernandez. “If the guarantor should be compelled to pay the balance of the purchase price. the seller has every right to receive payments on the unpaid balance of the price from the buyer (Northern Motors. he will in turn be entitled to recover what she has paid from the debtor-vendee (Cruz vs Filipinas Investment. etc (Bordon vs Servicewide Specialist. 33 SCRA 356) EFFECTS: a) Cannot recover unpaid balance. indemnity for damages may be demanded from the person causing the loss. 99 Phil 782) • Prior to the actual foreclosure of and the actual sale of the mortgaged chattel. X Mortgagor refuses to deliver property to effect foreclosure. and the price with its interest. consequently.. 140 SCRA 255) b) Rescission seeks to cancel the contract and to waive further claim on the purchase price.c) Files action for rescission • There must be an unequivocal desire on the part of the seller to rescind the contract (Vda. Rescission creates the obligation to return the things which were the object of the contract. recover also expenses incurred in attorneys fees. In this case. together with their fruits.. Inc.

• In which. vs Eustaquio. the proceeds obtained therefrom are insufficient to cover the full amount of the secured obligation which in the case at bar shown by the note and by the mortgage deed. include interest on the principal. he can no longer collect any further amounts against the buyer-lessee. the right to repossess the property. by retaining ownership over the property in the guise of being the lessor. likewise. if such has been stipulated. Without 1485. attorney’s fees. • Article 1484 applies to a person or entity which has finance the purchase on installments of a movable.) UNPAID BALANCE: This is the deficiency judgment to which the mortgagee may be entitled where. Foreclosure: The seller-lessor may forfeit in his favor all rentals previously paid. the vendor. (Borbon vs Servicewide Specialist. expenses of collection and cost (Macondray & Co. PURPOSE: • These contracts may really be sales of personal property in installments. after the mortgaged chattel is sold at a public auction. Inc. .d) “Whether the seller-mortgagee forecloses the chattel mortgage before enforcement of the additional mortgages or seeks the enforcement of the additional mortgages prior to the foreclosure of the chattel mortgage. even damages. even if the underlying contract at issue is a loan because the promissory note has been assigned or negotiated by the original seller. 77 SCRA 152) MACEDA LAW (RA 6552) • This provides for certain protection to particular buyers of real estate payable on installments.. retains. without going through the process of foreclosure (Filinvest Credit vs CA) FINANCING INSTITUTIONS: • The provisions of Recto Law are applicable to financing transactions derived or arising from sales of movables on installments. the seller must be held to have lost by waiver of non-choice of his lien on the chattel mortgage of the personal property sold by and mortgaged back to him. 64 Phil 466) LEASE WITH OPTION TO BUY: Rescission: The lessor-seller may be able to collect damages as may be warranted by the circumstances. 1484 may easily be circumvented by scheming sellers of personal property in installments who may resort to leases of personal property with option to buy instead of chattel mortgages. where the seller subsequently assigns the load documents to the financing person or entity (Zayas vs Luneta Motor.

 Grace period is fixed at the rate of one (1) month for every one (1) year of installment payments to be exercised only once in every five (5) years of the life of the contract and its extensions. without additional interest. after five (5) years of installments. 4. 3. • Contract of Sale. 3. down payments. The right to pay in advance any installment or full unpaid balance of the purchase price anytime without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. The right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. deposits or options on the contract shall be included in the computation of the total number of installments made. . Contract to Sell. an additional 5% every year but not to exceed 90% of the total payments made.• Maceda Law does not cover all sales of realty on installments. the seller may cancel the contract after thirty (30) days from receipt by the buyer of the notice of cancellation of the demand for rescission of the contract by notarial act. This includes the sale or financing of real estate on installment payments. but primarily residential real estate. Financing Transactions RIGHTS GRANTED TO THE BUYER: A. If the buyer fails to pay the grace period. If the buyer has paid at least two (2) years of installments: 1. If the buyer has paid less than two (2) years of installments: 1. B. The right to pay in advance any installment or full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. 2. 2. the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made and. including residential condominium apartments. If the contract is cancelled. the unpaid installments due within the total grace period earned by him. Buyers shall be entitled to a grace period of sixty (60) days from the date the installment became due.  Actual cancellation shall take place after 30 days from receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and upon full payment of the cash surrender value to buyer. To pay. The right to sell his rights or assign the same to another person or to reisntate the contract by updating the account during the grace period and before actual cancellation of the contract.