Installment Sales Law

(Arts. 1484-1486; Civil Code)

This law covers contracts of sale of personal
property by installments. 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.

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.
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: (Alternative 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.

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. (Art. 1484 applies to lease
of personal property with option to buy)


ART. 1486

In the cases referred to in the two preceding articles, a
stipulation that the installments or rents paid shall not be
returned to the vendee of lessee shall be valid insofar as
the same may not be unconscionable under the
circumstances.

There must be a valid CONTRACT
The contract must be one of SALE (absolute sale)
What is sold must be PERSONAL PROPERTY
The sale must be on the INSTALLMENT PLAN (An
installment is any part or portion of the buying price,
including the down payment)
In case of the 2
nd
and 3
rd
remedies of Art. 1484, there must
be a failure to pay two or more installments
Applicable also in contracts purporting to be leases of
personal property with option to buy

To prevent abuse in the foreclosure of chattel mortgages by
selling at a low price and then suing for the deficiency


ALTERNATIVE REMEDIES (ART. 1484)
The remedies enumerated herein are not cumulative but
alternative which means that if one is fully exercised, the
others cannot be made used of.

Indeed, the election of one is a waiver of the right to resort
to others.
(I)Specific performance upon vendees failure to pay (applicable
even if there is only one default of payment of installment)

(II)Rescission of the sale if the vendee shall have failed to pay
in two or more installments (there must be mutual restitution unless
there be a stipulation to the contrary and the same is not unconscionable)

(III)Foreclosure of the chattel mortgage on the thing sold if
vendee shall have failed to pay two or more installments
(there shall be no further action against the purchaser to recover unpaid
balance of the price)
Real Estate Mortgage since real estate mortgage may be
foreclosed only in conformity with special provisions

Sale of Personal Property in straight terms, since a sale on
straight terms being one in which the balance, after the
payment of the initial sum should be paid in its totality at the
sum specified. Hence, in a sale on straight terms, the
mortgagee-seller will still be entitled to recover the unpaid
balance.


FACTS:

SMI sold to Moscoso a Chevrolet truck on an installment basis for
P6,445.00

Upon down payment, Moscoso executed a promissory note for P4,
915.00 for the unpaid balance of the purchase price, where a chattel
mortgage was constituted on the truck in favor of SMI

Of the P4,915.00, Moscoso already paid P550, leaving a balance of
P4,475.00

Moscoso failed to pay 3 installments on the balance of the purchase price

SMI filed a complaint against Moscoso to recover the unpaid balance

In said complaint, a writ of attachment was issued on properties of
Moscoso

The sheriff sold the truck at a public auction where SMI was the only
bidder
FACTS:

RTC ruled in favor of SMI and ordered Moscoso to pay the
balance of P4,475.00 plus interests and attorneys fees.

Both parties agreed that the case is governed by Art. 1484. SMI
stated that it availed the first remedy; while Moscoso contends
that the former availed of the third remedy of Art. 1484

Moscoso further claims that SMI did not content itself by waiting
for judgment on the complaint it filed and still obtained a
preliminary attachment on the truck. Hence, Moscoso alleges that
SMI abused the provisions of Art. 1484 in using foreclosure as a
remedy

ISSUE:

Whether or not the attachment caused to
be levied on the truck and its immediate sale at
public auction, was tantamount to the
foreclosure of the chattel mortgage on said
truck
HELD:

No, SMI had chosen the first remedy. The complaint is an ordinary civil
action for recovery of the remaining unpaid balance due on the
promissory note. The plaintiff had not adopted the procedure or
methods outlined by Sec. 14 of the Chattel Mortgage Law but those
prescribed for ordinary civil actions, under the Rules of Court.

There is nothing unlawful or irregular in plaintiffs act of attaching the
mortgaged truck itself. Since the plaintiff has chosen to exact the fulfillment
of the appellants obligation, it may enforce execution of the judgment that
may be favorably rendered hereon, on all personal and real properties of the
latter not exempt from execution sufficient to satisfy such judgment.