RESCISSION BY THE
damage is the rescission of the contract.
VENDOR AFTER DELIVERY
1591-1592 Rescission of a sale of
Immovables
-total loss
When seller may immediately sue for
rescission of the sale?
The seller must have reasonable
grounds to fear:
a. Loss of immovable property sold
b. Loss of the price
If Neither ground exists. Article 1191
applies.
Art. 1191. The power to rescind
obligations is implied in reciprocal ones,
in case one of the obligors should not
comply with what is incumbent upon
him.
The injured party may choose between
the fulfillment and the rescission of
the obligation, with the payment of
damages in either case. He may also
seek rescission, even after he has
chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without
prejudice to the rights of third persons
who have acquired the thing, in
accordance with Articles 1385 and 1388
and the Mortgage Law. (1124)
REASON
If the vendee has shown signs of
irresponsibility, the subject matter of the
sale may perish. The only remedy that
can guarantee the vendor against such
APPLICATION
There has been delivery of the
immovable property but the vendee has
not yet paid the price.
Applicable to both cash sales and to
sales in installments.
Only applicable to a sale of real
property.
1592- immovable, no loss of the thing,
but there is no payment. APPLICABLE
TO ABSOLUTE SALE, Maceda Law
Sale of real property is subject to the
stipulations agreed by the parties and
article 1592 which says sales of
immovable property with a stipulation
that failure to pay the price at the time
agreed upon will cause the rescission of
the contract.
The demand is not for the payment of
the price but for the rescission of the
contract.
Demand may be:
1. Judicial
2. Extrajudicial (by notarial act)
Note: any act that a notary public is
empowered to perform 
Before a demand for rescission of the
contract has been made to the vendor,
the vendee may still pay the price after
the expiration of the stipulated period for
payment and notwithstanding a
stipulation that failure to pay the price on
the stipulated date ipso facto resolves
the sale.
RIGHT TO RESCIND IS NOT
ABSOLUTE
The court may extend the period for
payment.
When 1592 is not applicable?
(vendee may no longer pay for the price
after expiration of the time agreed upon)
1. Sales on installments of real
property in which the parties have
laid down the procedure to be
followed in the event the vendee
failed to fulfill his obligation.
2. To a mere promise to sell where
the title remains with the vendor
until full payment of the price
Article 1592 of the Civil Code does not
apply to a conditional sale. Article1592
of NCC applies only to a contract of sale
and not to a Deed of Conditional Sale
where the seller has reserved title to the
property until full payment of the
purchase price.
1593 rescission of a sale of movables
-applies only if the object sold not
been delivered to the vendee, vendor
can rescind the contract, as a matter of
right, if the vendee, without any valid
cause, does not:
1. Accept delivery or
2. Pay the price unless credit period
for its payment has been stipulated
If already delivered, other articles will
be applicable like 1191. Automatic
rescission is not allowed. An affirmative
action is necessary, the action being
one to rescind judicially, if the buyer
refuses to come to amicable settlement.
Reason: Personal properties are not
capable of maintaining a stable price in
the market. Their prices are so
unchangeable that any delay in their
disposal might cause the vendor a great
prejudiced.
REMEDIES IN CASE OF
BREACH OF WARRANTY
Actions/Remedies of the seller in
case of buyer wrongfully refuses to
accept
a. Maintain an action for damages
because of the non-acceptance.
(Article 1596)
b. Hold the goods as bailee for the
buyer and bring an action for the
price (Article 1595 Par 3)
c. Ask for the resolution of the
contract for failure of the buyer to
fulfill obligations.
Remedies of the buyer in case of
breach of warranty
1. Accept goods and set up breach
of warranty by way of recoupment
in diminution or extinction or the
price;
2. Accept goods and maintain
action against seller for damages;
3. Refuse to accept goods and
maintain action against seller for
damages;
4. Rescind contract of sale and
refuse to receive goods/return
them when already received.
Remedies of the buyer in case of breach
of warranty - NOT ABSOLUTE
The vendee's remedies against a
vendor with respect to the warranties
against hidden defects or encumbrances
upon the thing sold, in the case of Arts.
1561, 1562, 1564, 1565 and 1566 of the
Civil Code, may either be:
1. to withdraw from the
contract or
2. demand a proportionate
reduction of the price, with
damages in either case.
The vendee may also ask for the
annulment of the contract upon proof of
error or fraud, in which case the ordinary
rule on obligations shall be applicable;
responsibility arising from fraud is
demandable in all obligations and any
waiver of an action for future fraud is
void. Responsibility arising from
negligence is also demandable in any
obligation, but such liability may be
regulated by the courts, according to the
circumstances.
The vendor could likewise be liable
for quasi-delict under Article 2176 of
the Civil Code, and an action based
thereon may be brought by the vendee
(Coca-Cola Bottlers Philippines, Inc. v.
CA, G.R. No. 110295, October 18,
1993).
Instances when the buyer cannot
rescind the sale in case there is a
breach of warranty
1. If he knew of the breach of
warranty;
2. If he fails to return or offer to
return goods to seller in
substantially as good condition as
they were at time ownership was
transferred;
3. If he fails to notify the seller within
a reasonable time of his election
to rescind.
UNPAID SELLER
Unpaid Seller
One is considered as unpaid seller
when:
1. The whole of the price has not
been paid or tendered
2. A bill of exchange or other
negotiable instrument has been
received as conditional payment,
and the condition on which it was
received has been broken by
reason of the dishonor of the
instrument, the insolvency of the
buyer, or otherwise (NCC, Art.
1525).
NOTE: The mere delivery of a
negotiable instrument does not ipso
facto extinguish the obligation of the
buyer to pay because the instrument
which has been delivered may be
dishonored. In which case, the seller is
still an unpaid seller.
Moreover, bills of exchange or
mercantile documents shall produce the
effect of payment only when they have
been cashed or when through the fault
of the creditor, they have been impaired.
It includes an agent of the seller to
whom the bill of lading has been
indorsed, or consignor or agent who has
himself paid, or is directly responsible
for the price, or any other person who is
in the position of a seller (Pineda, 2010).
Q: When is a seller considered
unpaid despite the title of the goods
passing to the buyer?
A: Whenever the seller was only paid
partially, he remains an unpaid seller
(Pineda, 2010).
Rights of Unpaid Seller
1. Possessory lien
2. Right of stoppage in transitu (if
seller has parted with the
possession)
3. Right of resale
4. Right to rescind the sale
Remedies of an Unpaid Seller
I. Ordinary
1. Action for Price (NCC, Art. 1595)
Exercised when:
a. Ownership has passed to buyer;
b. Price is payable on a day certain;
c. Goods cannot readily be resold
for reasonable price and Art.
1596 of NCC is inapplicable.
2. Action for Damages – In case of
wrongful neglect or refusal by the buyer
to accept or pay for the thing sold.
NOTE: The measure of damages is the
estimated loss directly and naturally
resulting in the ordinary course of
events from the buyer’s breach of
contract.
Where there is an available market for
the goods in question, the measure of
damages is, in the absence of special
circumstances showing proximate
damage of a different amount, the
difference between the contract price
and the market or current price at the
time or times when the goods ought to
have been accepted, or, if no time was
fixed for acceptance, then at the time of
the refusal to accept.
II. Special (NCC, Art. 1596)
1. Possessory Lien (NCC, Art. 1527) –
seller not bound to deliver the object of
the contract of sale if buyer has not paid
him the price. This remedy presupposes
that the sale is on credit. It is exercisable
only in following circumstances:
a. goods sold without stipulation
as to credit
b. goods sold on credit but term
of credit has expired
c. buyer becomes insolvent
NOTE: When part of goods delivered,
may still exercise right on goods
undelivered.
Moreover, when title to the property has
passed to the buyer, but possession
remains in the hands of the seller, the
latter is necessarily holding the goods
for the buyer. For his protection, the
seller is entitled to possess the same
until he has been fully paid, or a tender
of the price has been made.
-PL remains only so long as the property
is still with the vendor
POSSESSORY LIEN AFTER PARTIAL
DELIVERY
-unpaid seller may exercise his right of
lien on the remainder.
The lien may be waived expressly or
impliedly.
Partial delivery may have been made
under such circumstances as to show
an intent to waive:
a. the lien
b. or right of retention
Loss of Lien:
a. When he delivers the goods to the
carrier or other bailee for purpose of
transmission to the buyer which
reserving the ownership in the goods or
the right to the possession thereof;
b. When the buyer or his agent lawfully
obtains possession of the goods; or
c. By waiver thereof (Rabuya, 2017).
NOTE: The lien lost is only the
possessory lien and not the vendor’s
lien on the price
2.Stoppage in Transitu (NCC, Art.
1530)
Available to the unpaid seller
a. if he has parted with the
possession of the goods
b. AND if the buyer is or becomes
insolvent
Requisites: (I-SCENT-U)
a. Insolvent buyer
b. The sale of goods must be on
Credit
c. Seller must Surrender the
negotiable document of title, if
any
d. Seller must bear the
Expenses of delivery of the
goods after the exercise of the
right.
e. Seller must either actually
take possession of the goods
sold or give Notice of his claim
to the carrier or other person
in possession
f. Goods must be in Transit
g. Unpaid seller
NOTE: Buyer’s insolvency need not be
judicially declared. A person is insolvent
who either has ceased to pay his debts
in the ordinary course of business or
cannot pay his debts as they become
due, whether insolvency proceedings
have been commenced or not. [NCC,
Art. 1636 (2)].
3. Special Right to Resell the Goods
(NCC, Art. 1533)
Exercised when:
a. Goods are perishable,
b. Stipulated the right of resale in
case of default (express
stipulation), or
c. Buyer in default for
unreasonable time
(unreasonable default)
4. Special Right to Rescind (NCC, Art.
1597)
Requisites:
a. Goods have not been
delivered to the buyer;
b. Buyer has repudiated the
contract of sale; or
 c. Has manifested his inability to
perform his obligations
thereunder; or
d. Has committed a breach
thereof, which must be
substantial.
NOTE: Here, the seller may thereafter
totally rescind the contract of sale by
giving notice of his election to do so to
the buyer.
Instances when possessory lien is
lost
1. Seller delivers without reserving
ownership in goods or right to
possess them;
2. Buyer or agent lawfully obtains
possession of goods;
3. Waiver (NCC, Art. 1529).
NOTE: Seller loses lien when he parts
with good (but still, stoppage in transitu
can be exercised).
Right of stoppage in transitu
The seller may resume possession of
the goods at any time while they are in
transit, and he will then become entitled
to the same rights in regard to the goods
as he would have had if he had never
parted with the possession (NCC, Art.
1530).
Thereafter, the seller may exercise the
following rights:
1. Right of lien; NCC, Art. 1527
2. Right to resell; NCC, Art. 1533
and
3. Right to rescind the transfer of
title. (NCC, Art. 1534)
Goods considered to be in transit
1. After delivery to a carrier or other
bailee and before the buyer or his
agent takes delivery of them; and
2. If the goods are rejected by the
buyer, and the carrier or other
bailee continues in possession of
them, even if the seller has
refused to receive them back
[NCC, Art. 1531(1)].
Goods deemed to be no longer in
transit
1. After delivery to the buyer or his
agent;
2. If the buyer/agent obtains
possession of the goods at a
point before the destination
originally fixed;
3. If the carrier or the bailee
acknowledges that he holds the
goods in behalf of the buyer/ his
agent;
4. If the carrier or bailee wrongfully
refuses to deliver the goods to
the buyer or his agent
(Villanueva, 2009).
Enforcement of right to stoppage in
transitu / HOW THE RIGHT OF
STOPPAGE IN STRANSITU MAY BE
EXERCISED
The seller may:
1. Take actual possession of the
goods;
2. Give notice of his claim to the
carrier or other bailee who is in
possession of the goods (NCC,
Art. 1532).
TO WHOM NOTICE IS GIVEN
Either:
 a. To the person in actual
possession of the goods
b. Or this his principal
Effect of the exercise of this right
1. The goods are no longer in
transit;
2. Contract of carriage end. The
carrier now becomes a mere
bailee, and will be liable as such;
and
3. The carrier should not deliver
anymore to the buyer or the
latter’s agent
4. The carrier must redeliver to, or
according to the directions of, the
seller.
5. Seller would have the same
rights to the goods as if he had
never had never parted
possession with it. (NCC, Arts.
1530 & 1531)
Seller’s knowledge of the buyer’s
insolvency
The seller cannot exercise the right to
stoppage in transit because he is under
estoppel. He assumed the risk.
Rationale behind the right of
stoppage in transitu
To prevent injustice of allowing the
buyer to acquire ownership and
possession of the goods when owing to
his insolvency, he cannot pay the price
(Pineda, 2010).
Effect of exercising the special right
of RESALE
The unpaid seller shall not be liable to
the original buyer upon the sale or for
any profit made by such resale, but may
recover from the buyer damages for any
loss occasioned by the breach of the
sale (NCC, Art. 1533).
NOTE: The seller cannot, however,
directly or indirectly buy the goods.
Cases in which it is allowed:
1. Where the goods are of perishable in
nature;
2. Where the seller has expressly
reserves the right of resale in case the
buyer should make default; or
3. Where the buyer has been in default
in payment of the price for unreasonable
time [NCC, Art. 1533(1)].
Perishable- the good can deteriorate
rapidly
Notice to the defaulting buyer
GR: Notice to the defaulting buyer NOT
required in the resale of goods
XPN: Where the right to resell is not
based on the perishable nature of the
goods or upon an express provision of
the sale.
NOTE: Notice of time and place of
resale is not essential to the validity of
such resale (NCC, Art. 1533).
Effect of exercising the special right
to RESCIND
The unpaid seller shall not be liable to
the buyer upon the sale, but may
recover from the buyer damages for any
loss occasioned by the breach of the
sale (NCC, Art. 1534).
Cases in which it is allowed:
 1. Where the seller has expressly
reserved the right to rescind in
case the buyer should make
default (express stipulation or
reservation); or
2. Where the buyer has been in
default in the payment of the
price for unreasonable length of
time /9unreasonable default)”
[NCC, Art. 1534(1)].
What should be done in order to rescind
the transfer of title?
A: there must be notice to the buyer or
there must be an overt act showing an
intention to rescind.
EFFECT OF REPLEVIN SUIT
Replevin suit- recovery of personal
property
There must is an implied rescission of
the sale of goods sought to be
recovered.
If ownership is claimed over the
property, and it is subsequently offered
to a third person, these facts can be
presented to indicate an intention to
rescind.
EFFECT IF BUYER HAS ALREADY
SOLD THE GOODS
The unpaid seller’s right of Lien or
Stoppage in transit remains even if the
buyer has sold or otherwise disposed of
the goods.
XPN:
1. When the seller has given his
consent thereto
2. When the purchaser or the buyer
is a purchaser for value in good
faith of a negotiable document of
title.
Buyer deemed as insolvent
One is deemed insolvent when he either
ceased to pay his debts in the ordinary
course of business or cannot pay his
debts as they become due, whether
insolvency proceedings have been
commenced or not (Villanueva, 2009).
INSTALLMENT SALES LAW
OR RECTO LAW
Installment Sales Law
Commonly known as the “RECTO
LAW”. It is embodied in Art. 1484 of the
NCC, which provides for the remedies of
a seller in the contracts of sale of
personal property by installments.
NOTE: Art. 1484 of the NCC
incorporates the provisions of Act No.
4122 passed by the Philippine
Legislature on Dec. 9, 1939, known as
the "Installment Sales Law" or the
"Recto Law," which then amended Art.
1454 of the Civil Code of 1889.
Application of Recto Law
This law covers contracts of sale of
personal property by installment (Act
No. 4122). It is also 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
(PCI Leasing and Finance Inc. v.
Giraffe- X Creative Imaging, Inc., G.R.
No. 142618, July 12, 2007).
NOTE: Recto Law applies only to sale
payable in installments and not to a sale
where there is an initial payment and the
balance is payable in the future,
because such is a straight sale, not a
sale by installments.
NOT Application of Recto Law
1. Real estate mortgage
2. Sale of personal property on
straight terms
Requisites of Recto Law
Paras:
a. There must be a contract
b. Contract must be one of
sale
c. What is sold is personal
property
d. The sale must be on the
installment plan
1. Valid contract of sale;
2. Subject matter is personal
property;
3. Payable in installments; and
4. In the case of the second and
third remedies, that there has
been a failure to pay two or more
installments (NCC, Art. 1484).
Alternative remedies in case of sale
of personal property in installments
1. Specific Performance: Exact
fulfillment should the buyer fail to
pay
GR: If availed of, the unpaid
seller cannot anymore choose
other remedies;
XPN: If after choosing , it has
become impossible to perform it,
rescission may be pursued.
NOTE: If vendor elected
fulfillment or specific
performance:
a. The filing of collection suit
barred the foreclosure of the
mortgage. A mortgagee who files
a suit for collection abandons the
remedy of foreclosure of the
chattel mortgage constituted over
the personal properties or
security for the debt or value of
the promissory note which he
seeks to recover in the said suit.
b. Filing of B.P. 22 does not bar
foreclosure of mortgage
(Spouses Torres v. Medina).
However, in Chieng v. Spouses
Santos, it was held that the filing
of the B.P. 22 case is equivalent
to the filing of a collection suit for
the recovery of the mortgage-
loan. The Court explained that
the civil action for the recovery of
the amount of the dishonored
checks is impliedly instituted in
the criminal action. Hence, the
impliedly instituted civil action in
the criminal case for violation of
B.P. 22 is, in effect, a collection
suit or suit for recovery of
mortgage debt.
c. Action for recovery of
possession with replevin as
provisional remedy preparatory to
extrajudicial foreclosure is not an
action for collection much less for
foreclosure.
 But if the action for replevin
culminated in the foreclosure of
the chattel mortgage and the sale
of the personal property at the
public auction, then Article 1484
now applies (Rabuya, 2017).
2. Rescission: Cancel the sale if
buyer fails to pay 2 or more
installments. Deemed chosen
when:
a. Notice of rescission is
sent;
b. Takes possession of
subject matter of sale;
c. Files action for rescission.
NOTE: The stipulation that the
installments or rents already paid shall
not be returned to the vendee shall be
valid insofar as the same may not be
unconscionable under the
circumstances.
3. Foreclosure: Foreclose on
chattel mortgage if buyer fails to
pay 2 or more installments. 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.
NOTE: Of the three remedies,
only this third remedy bars the
recovery of unpaid balance.
Moreover, payment of damages,
attorney’s fees, and etc are also
barred.
GR: Actual foreclosure is
necessary to bar recovery of
balance.
XPN: Mortgagor refuses to deliver
property to effect foreclosure;
expenses incurred in attorney’s
fees, etc. in obtaining the property
may be recovered by the vendor.
The remedies are alternative, not
cumulative.
This means that the availment of one is
a bar to the other remedies.
Remedy must already been fully
exercised.
NOTE: In ordinary alternative
obligations, a mere choice categorically
and unequivocally made and then
communicated by the person entitled to
exercise his option concludes the
parties. The creditor may not thereafter
exercise any other option unless the
chosen alternative proves to be
ineffectual or unavailing due to no fault
on his part (Rabuya, 2017).
Rationale of Recto Law
To remedy the abuses committed in
connection with the foreclosure of
chattel mortgages and to prevent
mortgagees from seizing the mortgaged
property, buying it at a foreclosure sale
for a low price and then bringing suit
against the mortgagor for a deficiency
judgment. (Villanueva, 2009)
Effect of filing an action for specific
performance in case of default in the
payment of an installment sale
secured by a chattel mortgage on the
subject of the sale
The seller can collect from the buyer for
the sum of money the buyer failed to
pay. In case the sum collected is
insufficient, the court can still order for
the levy of the property subject of the
sale transaction to cover the balance.
Moreover, if the action instituted is for
specific performance and the mortgaged
property is subsequently attached and
sold, the sale thereof does not amount
to a foreclosure of the mortgage; the
seller-creditor is entitled to a deficiency
judgment (Industrial Finance
Corporation v. Ramirez, G.R. No. L-
43821, May 26, 1977).

Example Question and Answer:

Q: A mortgaged a diamond ring to M as

a security for a loan which was to be
paid 2 years thereafter. Since A failed to
pay M, she then foreclosed the
mortgaged property. However, it turned
out that the proceeds of the sale were
insufficient, thus, M filed an action for
specific performance. A contends that
this is a violation of the Recto law since
the foreclosure of the chattel bars
subsequent recovery. Is this correct?

A: NO. A is not correct in invoking the

Recto law since it is only applicable in
case of sale of personal property
through installment. In the given case,
the amount being claimed by A was to
be paid 2 years thereafter as a lump
sum, not through installments.
Moreover, the transaction is a loan not a
sale.

Recto Law does NOT cover a contract

to sell of movables

There will be nothing to rescind if the

suspensive condition (payment of full
purchase price) upon which the contract
is based fails to materialize (Villanueva,
2009).