Remedies of Parties

I. Remedies in cases of Movables (Personal Property)

A. Ordinary Remedies of SELLER

1. Movables in General
Automatic rescission shall take place in the interest of the seller if the
buyer, upon the expiration of the period for delivery of the thing:
a. Should not have appeared to receive it; or
b. Having appeared, should not have tendered the price at the time, unless
a longer period is stipulated for its payment (Art. 1593)

Note however that even if the law says “automatic rescission”, it is

necessary that the vendor should take some affirmative action indicating his
intention to rescind.

Example: S sold his piano to B for P30,000, said piano to be delivered on

October 18, 2018. If on October 18, 2018, B does not accept delivery or pay the
price without lawful cause, then S may elect to enforce compliance or to rescind
the contract with right to damages in either case.

The reason behind Article 1593 is that the delay is prejudicial to the seller
since personal properties are not capable of maintaining a stable price in the
market.

2. Sale of GOODS
2.1 Non-Payment of Price by the buyer (File Action for the Price of
Goods)

a. Ownership Transferred to the Buyer- where the ownership of the

goods has passed to the buyer who wrongfully neglects or refuses to pay for
them according to the terms of the contract, the seller may maintain an action
against him for the price of the goods, i.e., an action for specific
performance. (Art. 1595, par. 1)

b. No Transfer of Ownership to the Buyer- where the ownership in the

goods has not passed, if they cannot readily be resold for a reasonable price, the
seller may offer to deliver the goods to the buyer, and, if the buyer refuses to
receive them, may notify the buyer that the goods are thereafter held by the
seller as bailee for the buyer; thereafter, the seller may treat the goods as the
buyer’s and maintain an action for the price. (Art. 1595, par. 3)

c. When Price Payable on Certain Day- where the price is payable on

certain day, irrespective of delivery or of transfer of title, and the buyer wrongfully
neglects or refuses to pay such price, the seller may maintain an action for the
price although the ownership in the goods has not passed.
However, it shall be a defense to such an action that the seller at any time
before the judgment in such action has manifested an inability to perform the sale
on his part or an intention not to perform it. (Art. 1595, par. 2)

2.2 Wrongful Neglect or Refusal to Accept the Goods by the Buyer

(File an Action for Damages)

a. Where the buyer wrongfully neglects or refuses to accept (and pay for
the goods) the seller may maintain an action for damages for non-acceptance.
(Art. 1596, par. 1)

b. In an executory contract, where the ownership in the goods has not

passed, and the seller cannot maintain an action to recover the price, the seller’s
remedy will also be an action for damages (Art. 1595)

c. If the goods are not yet identified at the time of the contract or
subsequently, the seller’s right is necessarily confined in an action for damages.
(DE LEON, p. 176)

Measure of Damages for Non-Acceptance of Goods

i. The estimated loss directly and naturally resulting in the ordinary course
of events from the buyer’s breach of contract. (Art. 1596, par. 2)

ii. When there is an available market for the goods in question, the
measure of damages is the difference between the contract price and the market
price. Under special circumstances, proximate damages of a greater amount
than the difference between the contract price and market price may be awarded
if it can be reasonable attributed to the non-performance of the obligation. (Art.
1596, par. 3)

iii. When labor or expenses for the materials are necessary on the part of
the seller to enable him to fulfill his obligations under the contract of sale, in case
of repudiation of the contract by the buyer, the measure of damages would
include:
a. The labor performed and expenses incurred for materials before
receiving notice of the buyer’s repudiation; and
b. Profit he would have realized if the sale had been fully performed (Art.
1596, par. 4)

2.3 Technical Rescission as a Right of the Seller

Article 1597 specifies the cases when the seller may rescind a contract of
sale of goods which have not yet been delivered to the buyer. They are:

a. When the buyer has repudiated the contract of sale;

b. When the buyer has manifested his inability to perform his obligations
thereunder; and
c. When the buyer has committed a breach of contract of sale.

The seller is required to give notice of his election to seek rescission to the
buyer.

B. Special Remedies of UNPAID SELLER of Goods

1. Definition of “Unpaid Seller”

Under Article 1525, the seller of the goods is deemed to be an unpaid
seller either:

a. When the whole of the price has not been paid or tendered; or
b. When 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 dishonor of the instrument, the insolvency of the buyer,
or otherwise.

The term “unpaid seller” also includes the following:

i. agent of the seller

ii. consignor or agent who has himself paid the price or is responsible for
the price; and
iii. any other person in the position of the seller

2. Rights of Unpaid Seller (PoS4WA2RM)

 2.1 Possessory Lien
2.2 Stoppage of goods in transitu
2.3 Special right of resale
2.4 Special right of rescission
2.5 Specific performance
2.6 Withholding delivery
2.7 Action for the price
2.8 Action for damages
2.9 Recto Law
2.10 Maceda Law

2.1 Possessory Lien

If the seller is an unpaid seller as defined by law, notwithstanding
that the ownership in the goods may have passed to the buyer, the unpaid seller
still has a lien on the goods or right to retain them for the price while he is in
possession of them. Where the ownership in the goods has not passed to the
buyer, the unpaid seller has, in addition to his other remedies, a right of
withholding delivery similar to and co-extensive with his right of lien.

The possessory lien of the unpaid seller is exercisable only in the

following instances:

a. Where the goods have been sold without stipulation as to credit;

b. Where the goods have been sold on credit, but the term of credit
has expired;
c. Where the buyer becomes insolvent
Basis: When one party to a bilateral contract is incapacitated from
performing his part of the agreement, the other party is also excused from
performing his part.

The seller may exercise his right of lien notwithstanding that he is in

possession of the goods as agent or bailee for the buyer. (Art. 1527)

The unpaid seller’s right of lien is not affected by any sale, or other
disposition of the goods which the buyer may have made, unless the seller
assented thereto. (Art. 1535)

2.1.1 When Negotiable Document of Title Issued

 If a negotiable document of title has been issued for goods, no
seller’s lien shall defeat the right of any purchaser for value and in good faith to
whom such document has been negotiated, whether such negotiation be prior or
subsequent to the notification to the carrier, or other bailee who issued such
document, of the seller’s claim to a lien. (Art. 1535)

2.1.2 When Part Delivery Effected

Where an unpaid seller has made part delivery of the goods, he may
exercise his right if lien on the remainder, unless such part delivery has been
made under such circumstances as to show intent to waive the lien or right of
retention. (Art. 1528)

2.1.3 Instances When Possessory Lien Lost

The unpaid seller of goods loses his lien on the goods whenever:

a. The seller delivers the goods to a carrier or other bailee for the
purpose of transmission to the buyer without reserving the ownership in the
goods or the right to the possession thereof;
b. The buyer or his agent lawfully obtains possession of the goods;
c. By waiver thereof.

However, the unpaid seller of the goods, having a lien thereon, does
not lose his lien by reason only that he has obtained judgment or decree for the
price of the goods. (Art. 1529)

2.2 Stoppage in Transitu

Notwithstanding that the ownership in the goods may have passed
to the buyer, the unpaid seller of the goods has, in case of the insolvency of
the buyer, a right of stopping the goods in transitu after he has parted with the
possession of them. The unpaid 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. (Art. 1526)

The unpaid seller’s right of stoppage in transitu is not affected by

any sale or other disposition of the goods which the buyer may have made,
unless the seller assented thereto. (Art. 1535)

2.2.1 When Negotiable Document of Title Issued

 If a negotiable document of title has been issued for goods, no
seller’s right to stoppage in transitu shall defeat the right of any purchaser for
value and in good faith to whom such document has been negotiated, whether
such negotiation be prior or subsequent to the notification to the carrier, or other
bailee who issued such document, of the seller’s claim to right of stoppage in
transitu (Art. 1535)

2.2.2 When Buyer is Deemed “Insolvent”

A buyer is deemed insolvent when he 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. (Art. 1636, par.
2)

2.2.3 When Goods are Deemed in Transit

Goods are in transit to authorize the unpaid seller to exercise his
right of stoppage in transitu:

a. From the time they are delivered to a carrier by land, water, or air,
or other bailee for the purpose of transmission to the buyer, until the buyer, or his
agent in that behalf, takes delivery of them from such carrier or other bailee; or
b. 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. (Art. 1531)

2.2.4 When Goods are Deemed no longer in Transit

Goods are no longer in transit when:

a. The buyer or his agent obtains delivery of the goods before their
arrival at the appointed destination;
b. After the arrival of the goods at the appointed destination, the
carrier or other bailee acknowledges to the buyer or his agent that he holds the
good on his behalf and continues in possession of them as bailee for the buyer or
his agent;
c. The carrier or other bailee wrongfully refuses to deliver the goods
to thee buyer or his agent. (Art. 1531)

If the goods are delivered to a ship, freight train, truck or airplane

chartered by the buyer, it is a question depending on the circumstances of the
particular case, whether they are in the possession of the carrier as such or as
agent of the buyer. (Art. 1531)
 2.2.5 When Part Delivery Already Made
If part delivery of the goods has been made to the buyer, or his
agent in that behalf, the remainder of the goods may be stopped in transitu,
unless such part delivery has been under such circumstances as to show an
agreement with the buyer to give up possession of the whole of the goods. (Art.
1531)

2.2.6 How Right is Exercised

The unpaid seller may exercise his right of stoppage in transitu
either by:

a. Obtaining actual possession of the goods; or

b. Giving notice of his claim to the carrier or other bailee in whose
possession the goods are

When notice is given, such notice may be given either to the person
in actual possession of the goods or to his principal. In the latter case the notice,
to be effectual, must be given at such time and under such circumstances that
the principal, by the exercise of reasonable diligence, may prevent a delivery to
the buyer. (Art. 1532)

2.2.7 When Goods Covered by Negotiable Document of Title

When a negotiable document of title representing goods has been
issued by the carrier or other bailee he shall not be obliged to deliver or justified
in delivering the goods to the unpaid seller unless such document is first
surrendered for cancellation. (Art. 1532)

2.3 Special Right to Resell the Goods

Notwithstanding that the ownership in the goods may have passed
to the buyer, the unpaid seller has a special right of resale, but only under the
conditions provided by law.

2.3.1 When Right Exercisable

The special right of resale can be made only when the unpaid seller
has previously exercised either his right of possessory lien or stoppage in
transitu, and under any of the following conditions:

a. The goods are of perishable nature;

 b. Where the right has been expressly reserved in case the buyer
should make default; or
c. Where the buyer has been in default in the payment of the price
for an unreasonable time.

2.3.2 Effect of Having Exercised Right of Resale

When the unpaid seller has exercised his right of resale, he shall not
thereafter 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.

In Hanlon vs. Hausserman (40 Phil. 796), the court said that if the
vendor exercised his right to resell the goods and is obliged to sell for less than
the contract price, he holds the buyer for the difference; if he sells for as much or
more than the contract price, the breach of contract by the original buyer is
damnum absque injuria (damage without injury).

In Katigbak vs. Court of Appeals (4 SCRA 243), the court held that if
the buyer fails to take delivery and pay the purchase price of the subject matter
of the contract, the seller without need of first rescinding the contract judicially, is
entitled to resell the same.

2.3.3 Transfer of Ownership

Where a resale is made by the unpaid seller, the buyer acquires a
good title as against the original buyer. This is the special feature of the right of
the unpaid seller to resell; not only is he able to destroy or obliterate the
ownership over the goods in the original buyer, he is also able to transfer
ownership to the subsequent buyer, even if at the time of tradition, he no longer
had ownership over the goods.

2.3.4 Notice to Defaulting Buyer

It is not essential to the validity of a resale that notice of an intention
to resell the goods be given by the seller to the original buyer. But where the right
to resell is not based on the perishable nature of the goods or upon an express
provision of the sale, the giving or failure to give such notice shall be relevant in
any issue involving the question whether the buyer had been in default for an
unreasonable time before the resale was made. It is not essential to the validity
of a resale that notice of the time and place of such resale should be given by the
seller to the original buyer. (Art. 1533)
 2.3.5 Standard of Care and Disqualification in Resale
The seller is bound to exercise reasonable care and judgment in
making a resale, and subject to this requirement may make a resale either by
public or private sale. He cannot, however, directly or indirectly buy the goods.

2.4 Special Right to Rescind

Notwithstanding that the ownership in the goods may have passed
to the buyer, the unpaid seller has a special right to extrajudicially rescind the
sale.

2.4.1 When Right may be Exercised

An unpaid seller having the right of lien or having stopped the goods
in transitu, may rescind the transfer of title and resume the ownership in the
goods, where:

a. The seller has expressly reserved the right to do so in case the

buyer should make default; or
b. The buyer has been in default in the payment of the price for an
unreasonable length of time.

2.4.2 Effect of Exercise of Such Right

The seller shall not thereafter be liable to the buyer upon the sale,
but may recover from the buyer damages for any loss occasioned by the breach
of the contract. (Art. 1534)

2.4.3 Transfer of Title

The transfer of title shall not be held to have been rescinded by an
unpaid seller until he has manifested by notice to the buyer or by some other
overt act an intention to rescind. It is not necessary that such overt act should be
communicated to the buyer, but the giving or failure to give notice to the buyer of
the intention to rescind shall be relevant in any issue involving the question
whether the buyer had been in default for an unreasonable time before the right
of rescission was asserted. (Art. 1534)

B. Remedies of BUYER

1. Failure of Seller to Deliver

 Where the seller has broken a contract to deliver specific or ascertained
goods, the buyer may seek action for specific performance to direct that the
contract shall be performed specifically, without giving the seller the option of
retaining the goods on payment of damages.

The judgment or decree may be unconditional, or upon such terms and

conditions as to damages, payment of the price and otherwise, as the court may
deem just. (Art. 1598)

2. Breach of Seller’s Warranty

Under Article 1599, where there is breach of warranty by the seller in the
sale of goods, the buyer may, at his election, avail of the following alternative
remedies:

a. Accept or keep the goods and set up against the seller, the breach
of warranty by way of recoupment in diminution or extinction of the price;
b. Accept or keep the goods and maintain an action against the
seller for damages for the breach of warranty;
c. Refuse to accept the goods, and maintain an action against the
seller for damages of breach of warranty;
d. Rescind the sale and refuse to receive the goods or if the goods
have already been received, return them or offer to return them to the seller and
recover the price or any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in any of these
ways, no other remedy can thereafter be granted, without prejudice to the buyer’s
right to rescind, even if previously he has chosen specific performance when
fulfillment has become impossible. (Art. 1191, par. 2)

2.1 When Rescission by the Buyer Not Allowed

The basis of the remedy is that the buyer has not received what he
bargained for. It cannot be availed of, however, in the following cases:

i. If the buyer accepted the goods knowing of the breach of warranty

without protest;
ii. If he fails to notify the seller within a reasonable time of his
election to rescind; and
iii. If he fails to return or offer to return the goods in substantially as
good condition as they were in at the time of the transfer of ownership to him. But
where the injury to the goods was caused by the very defect against which the
seller warranted, the buyer may still rescind the same.

2.2 Rights and Obligations of Buyer in case of Rescission

They are as follows:

i. The buyer shall cease to be liable to the price, his only obligation
being to return the goods;
ii. If he has paid the price or any part thereof, he may recover it from
the seller;
iii. He has also the right to hold the goods as bailee for the seller
should the latter refuse the return of the goods; and
iv. He has the right to have a lien on the goods for any portion of the
price already paid which lien he may enforce as if he were an unpaid seller.

3. Suspension of Payment in Anticipation of Breach

Under Article 1590, should the buyer be disturbed in the possession or
ownership of the thing acquired, or should he have a reasonable grounds to fear
such disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the seller has caused the disturbance or
danger to cease.

3.1 When Vendee cannot Suspend Payment of Price

a. If the vendor gives security for the return of the price in a proper
case;
b. If it has been stipulated that notwithstanding any such
contingency the vendee must make payment
c. If the vendor has caused the disturbance or danger to cease;
d. If the disturbance is a mere act of trespass; and
e. If the vendee has fully paid the price.

3.2 Remedy of Buyer Pending Suit

The pendency of suit justifies the buyer in suspending payment of
balance of the purchase price by the aforesaid vindicatory action filed. The
vendee case no cause of action for rescission before final judgment, the reason
being that otherwise, the vendor might become the victim of collusion between
the vendee and the third person.
 C. RECTO LAW: Sales of Movables on INSTALLMENTS

1. Coverage of Law
Article 1484 provides for the remedies of a seller in contracts of sale of
personal property by installments.

In a sale of personal property the price of which is payable in installments,

the seller may exercise any of the following remedies:

a. Exact fulfillment of the obligation, should the buyer fail to pay any
installment
b. Cancel (rescind) the sale, should the buyer’s failure to pay cover
two or more installments;
c. Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the buyer’s failure to pay cover two or more installments.

The article also specifically provides that if the seller should foreclose on
the mortgage constituted on the thing sold, he shall have no further action
against the purchaser to recover “any unpaid balance of the price” and any
agreement to the contrary shall be void.

2. Rationale of Recto Law

The passage of the Recto Law was meant 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 foreclosure sale for
a low price and then bringing suit against the mortgagor for a deficiency
judgment. The invariable result of such procedure was that the mortgagor found
himself minus the property and still owing practically the full amount of his
original indebtedness. (Bachrach Motor Co. vs. Millan, 61 Phil. 409)

3. When is Sale “on Installments?”

In Levy Hermanos, Inc. vs. Gervacio (69 Phil. 52), the court held that when
there is only one payment to be paid in the future, there is no basis to apply the
Recto Law, since under the language of such law, the buyer needs to have
defaulted in the payment of two or more installments to allow the seller to rescind
or foreclose on the chattel mortgage.

4. Nature of Remedies
Should the buyer of a personal property default in the payment of two or
more of the agreed installments, the vendor has the option to avail of any of the
remedies enumerated above. Hence, the remedies are alternative in nature in
that the exercise of one would bar the exercise of the others.

The remedies cannot also be pursued simultaneously, as when a

complaint is filed to exact fulfillment of the obligation, to seize the property
purchase and foreclose the mortgage executed.

4. Lease with Option to Purchase

Under Article 1485, the provisions of Article 1484 are expressly made
applicable 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.”

Under Article 1486, it provides that a stipulation that the installments or

rents paid shall not be returned to the buyer or lessee shall be valid insofar as
the same may not be unconscionable under the circumstances.