SALE OF MOVABLES ON

INSTALLMENT
Articles 1484 to 1486

Article 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 vendees failure to
pay cover two or more installments;
(3)Foreclose the chattel mortgage on the thing sold,
if one has been constituted, should the vendees
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.

Article 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.

Article 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
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.
X 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.
X If the remedy first chosen was not
completed or not fully exercised as
when there was voluntary desistance,
the vendor may avail himself of
another remedy.

THE RECTO LAW (ACT NO.

4122)
Article 1484 of the Civil Code provides for
the remedies of a seller in contracts of
sale of personal property by installments,
and incorporates the provisions of Act No.
4122, known as the Installment Sales Law
or the Recto Law, which then amended
Article 1454-A of the Civil Code of 1889.
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, buying it at a
foreclosure sale for a low price and
then bringing a suit for a deficiency
judgment against the mortgagor.

What It Means
Choice of Remedies You could only
choose one.
Deficiency Judgment For Rescission
and Foreclosure, one cannot recover
the unpaid balance of the price.

SPECIFIC PERFORMANCE
GR: When the seller has chosen
specific performance, he can no longer
seek for rescission nor foreclosure of
the chattel mortgage constituted on
the thing sold.
X Article 1191 xxx He may also seek
rescission, even after he has chosen
fulfillment, if the latter should become
impossible. xxx

EFFECTS
Vendor is barred from choosing either
rescission or foreclosure (X 1191)
One may have recovery of deficiency
(Industrial Finance Corp. 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.

BUT
In attaching the mortgaged chattel,
the debtor still has the ability to
retain the property attached by
giving a counter-bond and thereby
discharging the attachment.
(Southern Motors vs Moscoso, 2
SCRA 168)

RESCISSION
GR: When the remedy of rescission is chose,
there is correlative obligation on the part of
the vendor to restitute the vendee for
whatever amount the latter has paid.
X When there is a stipulation that
installments paid are forfeited. Such
stipulation is valid as long as the same may
not be unconscionable under the
circumstances [1486]

Deemed Chosen
a) Notice of Rescission was sent
b) Takes possession of the subject
matter of sale
c) Files action for rescission
) There must be an unequivocal desire
on the part of the seller to rescind
the contract (Vda. De Quaimbao vs
Manila Motor C., Inc., 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, the same
implicit from the nature of the remedy which is
mutual restitution (Nonato vs IAC, 140 SCRA
255)
b) Rescission seeks to cancel the contract and to
waive further claim on the purchase price.
c) The vendor may recover damages for breach of
contract.
d) Mutual Restitution

Article 1385. Rescission creates the obligation to

return the things which were the object of the
contract, together with their fruits, and the price
with its interest; consequently, it can be carried
out only when he who demands rescission can
return whatever he may be obliged to restore.
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.
In this case, indemnity for damages may be
demanded from the person causing the loss.

FORECLOSURE
At the time of the actual sale of the subject
property at the public auction pursuant to
the foreclosure proceedings (Manila Motor
Co., Inc., vs Fernandez, 99 Phil 782)
Prior to the actual foreclosure of and the
actual sale of the mortgaged chattel, the
seller has every right to receive payments
on the unpaid balance of the price from
the buyer (Northern Motors, Inc vs
Sapinoso, 33 SCRA 356)

EFFECTS
a) Cannot recover unpaid balance; X Mortgagor
refuses to deliver property to effect foreclosure,
recover also expenses incurred in attorneys fees,
etc (Bordon vs Servicewide Specialist, Inc., GR
No. 106418)
b) Securities given by third party persons or the
payment of the price; If the guarantor should be
compelled to pay the balance of the purchase
price, he will in turn be entitled to recover what
she has paid from the debtor-vendee (Cruz vs
Filipinas Investment, 23 SCRA 791)

c) Other Securities via Extrajudicial Action

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, 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. (Borbon vs Servicewide Specialist,
Inc.)

UNPAID BALANCE
This is the deficiency judgment to which the
mortgagee may be entitled where, after the
mortgaged chattel is sold at a public auction,
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, attorneys
fees, expenses of collection and cost
(Macondray & Co., vs Eustaquio, 64 Phil 466)

LEASE WITH OPTION TO

PURCHASE
Rescission: The lessor-seller may be able
to collect damages as may be warranted
by the circumstances.
Foreclosure: The seller-lessor may forfeit
in his favor all rentals previously paid, if
such has been stipulated, he can no
longer collect any further amounts
against the buyer-lessee, even damages.

1485: RATIONALE
These contracts may really be sales of personal
property in installments. Without 1485, 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.
In which, the vendor, by retaining ownership
over the property in the guise of being the
lessor, retains, likewise, the right to repossess
the property, without going through the
process of foreclosure (Filinvest Credit vs CA)

FINANCING TRANSACTIONS
The provisions of Recto Law are applicable to
financing transactions derived or arising from
sales of movables on installments, even if the
underlying contract at issue is a loan because
the promissory note has been assigned or
negotiated by the original seller.
Article 1484 applies to a person or entity which
has finance the purchase on installments of a
movable, where the seller subsequently assigns
the load documents to the financing person or
entity (Zayas vs Luneta Motor, 77 SCRA 152)

THE MACEDA LAW (RA

6552)
This provides for certain protection to
particular buyers of real estate payable on
installments.
Maceda Law does not cover all sales of realty
on installments, but primarily residential real
estate. This includes the sale or financing of
real estate on installment payments, including
residential condominium apartments.
Contract of Sale; Contract to Sell; Financing
Transactions

RIGHTS GRANTED TO THE

BUYER
A. If the buyer has paid at least two (2) years of
installments:
1. To pay, without additional interest, the unpaid
installments due within the total grace period
earned by him.
.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; down
payments, deposits or options on the contract shall
be included in the computation of the total number
of installments made.

2. If the contract is cancelled, 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,
after five (5) years of installments, an
additional 5% every year but not to exceed
90% of the total payments made.
.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.

3. 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.
4. 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

B. If the buyer has paid less than two

(2) years of installments:
1. Buyers shall be entitled to a grace
period of sixty (60) days from the
date the installment became due. If
the buyer fails to pay the grace
period, 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.

2. 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.
3. 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.