Contract of Sale

Franklin Lopez
Accounting Education Department
RMMC-MI
Recto Law
Remedies of the vendor in installment sales of
personal property; and contracts purporting
personal property with option to buy, when the
lessor has deprived the lessee of the possession
or enjoyment of the thing.
Recto Law only applies to:
 Installments Sales of personal property
 Leases with option to buy of personal
property.
3 remedies available on the part of the
vendor
1. Exact fulfillment
2. Cancel/rescind the sale
3. Foreclose the chattel mortgage
1. Exact fulfillment
• regardless of the number of installments unpaid
• In case of deficiency, the vendor can still run after the buyer for
the deficiency
 series of demand letters
 If still no payment, filing of a collection case
 Move for attachment
 Auction
 proceeds applied to unpaid installments
 If not enough, the buyer can run after the buyer for the
deficiency. (other assets)
Example:
S sold his only car to B for P100,000 payable in 10
equal installments of P10,000 each. As a security,
B executed a chattel mortgage on the car. After
paying 3 installments, B defaulted in the payment
of the forth installment. What remedy/remedies
available to S?

May S cancel the sale or foreclose the chattel

mortgage on the car?
B defaulted in the payment of fourth and fifth
installment and as a result, S foreclose the
chattel mortgage constituted on the car. At the
foreclosure sale, the car was sold only for a net
amount of P50,000. Can S recover the deficiency
of P20,000 from B?
2. Cancellation of the sale
• It can be availed of if there are 2 or more
installments have not been paid
• The vendor is oblige to return to the vendee
the sums collected less reasonable amount of
rent
Example:
Owen, the owner of the forklift, leased the same to Teng. The
lease contract provided, among other terms and conditions, viz:
1. Lease period – 2 years
2. Monthly rental P2,000.00
3. Teng is given the option to buy the forklift at the end of the
term of the lease with the monthly rentals being considered
as installments payment.
After 8 months, Teng defaulted in his payment of rental on the
9th, 10th, & 11th. Accordingly, Owen terminated the lease
contract and repossessed the forklift. May Owen recover the
rental in arrears from Teng?
3. Foreclose the chattel mortgage
• It can be availed of if there are 2 or more
installments have not been paid
• The property will be foreclosed and sold at a
public auction
• If proceeds is not enough, the VENDOR
CANNOT anymore run after the vendee for the
deficiency.
When deficiency may be recovered
1. In case of sale on straight-term
2. If security foreclosed is other than the chattel
mortgage constituted on the thing sold
3. In the case of sale on execution of judgement
in favor of the seller.
Example:
S sold his ring to B for P50,000 under the
following terms: down payment of P30,000;
balance at month end. As security, B executed a
chattel mortgage on the ring. B defaulted in the
payment of the balance. By reason thereof, S
foreclosed the chattel mortgage on the ring.
However, only P15,000 was realized in the
foreclosure sale. Can S sill proceed against B to
collect the deficiency of P5,000?
Another Example:

S sold his car to B for P100,000 payable in 10 equal

installment of P10,000. as security, B executed a chattel
mortgage on the car and another chattel mortgage on
his piano. After paying the first 2 installment, B
defaulted in the payment of the third, fourth and fifth
installments. As a consequence, S foreclosed the chattel
mortgage on the piano which was sold for P75,000.
Q1. May S recover the deficiency of P5,000?
Q2. May S foreclosed the chattel mortgage on the car in
order to recover the deficiency?
Another Example:

S sold his only car to B for P100,000 payable in 10 equal

monthly installments of 10,000 each. As security, B executed
a chattel mortgage on the car. After paying the first 2
installments, B defaulted in the payment of the third, fourth
and fifth installments. As a consequence, S brought a court
action against B to recover the balance. The court rendered
judgement in favor of S and against B who was ordered to
pay. Since B had no other property except the car, S moved
for the attachment of the car and its sale to satisfy the
judgement. At the execution sale, the car was sold for a net
amount of P75,000. May S recover the deficiency of P5,000?