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I. RIGHTS AND OBLIGATION OF THE VENDEE
a. Principal obligation of the vendee
1582 The vendee is bound to accept delivery and to pay the price of the
thing sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment
must be made at the time and place of the delivery of the thing sold
The principal obligations of the vendee are:
1. to accept delivery; of the thing sold; and
2. to pay the price1 of the thing sold at the time and place stipulated in the contract;
and
3. to bear the expenses for the execution and registration of the sale and putting the
goods in a deliverable state, if such is the stipulation.
1. No obligation to accept the delivery by installment
1583 Unless otherwise agreed, the buyer of goods is not bound to accept
delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated
installments, which are to be separately paid for, and the seller
makes defective deliveries in respect of one or more instalments, or
the buyer neglects or refuses without just cause to take delivery of
or pay for one more instalments, it depends in each case on the
terms of the contract and the circumstances of the case, whether
the breach of contract is so material as to justify the injured party in
refusing to proceed further and suing for damages for breach of the
entire contract, or whether the breach is severable, giving rise to a
claim for compensation but not to a right to treat the whole
contract as broken.
General rule. — In an ordinary contract for the sale of goods, the buyer is not bound to
receive delivery of the goods in installments. He is entitled to delivery of all the goods
at the same time and, it may be added, is bound to receive delivery of all at the same
time
Where separate price has been fixed for each installment. — Where the contract
provides for the delivery of goods by installments and a separate price has been agreed
upon for each installment, it depends in each case on the terms of the contract and the
circumstances of the case whether the breach thereof is severable or not
a. Where breach affects whole contract. — If the seller makes defective, partial or
incomplete deliveries or the buyer wrongfully neglects or refuses to accept delivery
or fails to pay any installment, the injured party may sue for damages for breach of
the entire contract if the breach is so material (e.g., breach of one installment
prevents the further performance of the contract) as to affect the contract as a
whole.
b. Where breach severable. — Where the breach is severable, it will merely give rise
to a claim for compensation for the particular breach but not a right to treat the
whole contract as broken.
2. Modes of manifesting acceptance
1585 The buyer is deemed to have accepted the goods when he intimates
to the seller that he has accepted them, or when the goods have
been delivered to him, and he does any act in relation to them
which is inconsistent with the ownership of the seller, or when, after
the lapse of a reasonable time, he retains the goods without
intimating to the seller that he has rejected them.
Express acceptance takes place when the buyer, after delivery of the goods, intimates
to the seller, verbally or in writing, that he has accepted them.
Implied acceptance takes place:
a. when the buyer, after delivery of goods, does any act inconsistent with the seller’s
ownership, as when he sells or attempts to sell the goods, or he use or makes
alteration in them in a manner proper only for an owner; or
b. when the buyer, after the lapse of a reasonable time, retains the goods without
intimating his rejection. Thus, the failure of the buyer to interpose any objection to
the invoices issued to it, to evidence delivery of the materials ordered as per
agreement with the seller and which contained the conditions in question, should
be deemed as an implied acceptance by the buyer of the said conditions
3. effect of wrongful refusal to accept
1588 If there is no stipulation as specified in the first paragraph of article
1523, when the buyer's refusal to accept the goods is without just
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cause, the title thereto passes to him from the moment they are
placed at his disposal
As a general rule, the delivery of the goods to a carrier is deemed to be a delivery of the
goods to the buyer.
This is true even if the buyer refuses to accept the goods in case his refusal is without
just cause. The title passes to the buyer and, therefore, the risk of loss is borne by him
(Art. 1504.) from the moment they are placed at his disposal.
4. Liability for interest
1589 The vendee shall owe interest for the period between the delivery
of the thing and the payment of the price, in the following three
cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial
demand for the payment of the price.
Interest expressly stipulated. — In such case, the rate stipulated governs. The
stipulation of the parties to pay interest may be oral. If the parties failed to fix the rate,
then the legal rate of interest shall be due
Fruits or income received by vendee from thing sold. — Under No. 2, two conditions
must exist: (a) that the thing sold has been delivered, and (b) that it produces fruits or
income. If the vendee would not be bound to pay interest for the use of the money,
which he should have paid, the principle of bilaterality which characterizes a contract of
sale would no longer exist.
Vendee guilty of default. — If the vendee incurs delay in the payment of the agreed
price (see Art. 1169.), the interest is due from the time of judicial or extrajudicial
demand by the vendor for the payment of the price.
5. Payment of the purchase price
1524 The vendor shall not be bound to deliver the thing sold, if the
vendee has not paid him the price, or if no period for the payment
has been fixed in the contract
As a general rule, the obligation to deliver the thing subject matter of a contract arises
from the moment of its perfection and from that time the obligation may be enforced.
(see Art. 1315.) But the contract of purchase and sale is bilateral and from it arises not
SALES89A |LDCS
only the obligation to deliver the thing but also that of paying the price. The obligations
are reciprocal.
exception: the rule is that the thing shall not be delivered unless the price be paid; and
the exception is that the thing must be delivered though the price be not first paid, if
time for such payment has been fixed in the contract.
Bricktown Devt Corp v. Amor Tierra Devt Corp
FACTS: Bricktown Development Corporation, represented by its President and co-petitioner
Mariano Z. Velarde, executed two Contracts to Sell in favor of Amor Tierra Development
Corporation, represented in these acts by its Vice-President, Moises G. Petilla, covering a
total of 96 residential lots at the Multinational Village Subdivision, La Huerta, Parañaque,
Metro Manila. The total price of P21,639,875.00 was stipulated to be paid by private
respondent in such amounts and maturity dates, as follows: P2,200,000.00 on 31 March
1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31 December 1981; and the
balance of P11,500,000.00 to be paid by means of an assumption by private respondent of
petitioner corporation's mortgage liability to the Philippine Savings Bank or, alternately, to
be made payable in cash. On date, March 31, 1981, the parties executed a Supplemental
Agreement, providing that private respondent would additionally pay to petitioner
corporation the amounts of P55,364.68, or 21% interest on the balance of down payment
for the period from 31 March to 30 June 1981, and of P390,369.37 representing interest
paid by petitioner corporation to the Philippine Savings Bank in updating the bank loan for
the period from 01 February to 31 March 1981. Private respondent was only able to pay
petitioner corporation the sum of P1,334,443.21. However, the parties continued to
negotiate for a possible modification of their agreement, but nothing conclusive happened.
And on October 12, 1981, petitioner’s counsel sent private respondent a “Notice of
Cancellation of Contract” because of the latter’s failure to pay the agreed amount. Several
months later, private respondent’s counsel, demanded the refund of private respondent's
various payments to petitioner corporation, allegedly "amounting to P2,455,497.71," with
interest within fifteen days from receipt of said letter, or, in lieu of a cash payment, to
assign to private respondent an equivalent number of unencumbered lots at the same price
fixed in the contracts. When the demand was not heeded, Amor Tierra filed an action with
the court a quo which rendered a decion in its favor. The decision of the lower court was
affirmed in toto by the Court of Appeals. Hence, this petition.
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ISSUE: Whether or not the contract was properly rescinded. Whether or not Bricktown
properly forfeited the payments of Amor Tierra.
RULING: The contract between Bricktown and Amor Tierra was validly rescinded because of
the failure of the latter to pay the agreed amounts stipulated in the contract on the proper
date even after the sixty-days grace period. Furthermore, the records showed that private
respondent corporation paid less than the amount agreed upon. The Supreme Court also
added that such cancellation must be respected. It may also be noteworthy to add that in a
contract to sell, the non-payment of the purchase price can prevent the obligation to
convey title from acquiring any obligatory force. On the second issue, the Supreme Court
ruled that since the private respondent did not actually possessed the property under the
contract, the petitioner is then ordered to return to private respondent the amount
remitted. However, to adjudge any interest payment by petitioners on the amount to be
thus refunded, private respondent should not be allowed to totally free itself from its own
breach.
6. Rights of the vendee
1. Toexamine the goods before delivery
1584 Where goods are delivered to the buyer, which he has not
previously examined, he is not deemed to have accepted them
unless and until he has had a reasonable opportunity of examining
them for the purpose of ascertaining whether they are in conformity
with the contract if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods
to the buyer, he is bound, on request, to afford the buyer a
reasonable opportunity of examining the goods for the purpose of
ascertaining whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance
with an order from or agreement with the buyer, upon the terms
that the goods shall not be delivered by the carrier to the buyer
until he has paid the price, whether such terms are indicated by
marking the goods with the words "collect on delivery," or
otherwise, the buyer is not entitled to examine the goods before the
payment of the price, in the absence of agreement or usage of trade
permitting such examination.
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Actual delivery contemplated. — the ownership of the goods shall be transferred only
upon actual delivery subject to a reasonable opportunity of examining them to
determine if they are in conformity with the contract
Goods delivered C.O.D./not C.O.D. - delivery of the goods to a carrier for the purpose
of transmission to the buyer is deemed to be delivery to the buyer
a. Although title passes to the buyer by the mere delivery to the carrier, the buyer
unless the goods are sent C.O.D. which is the normal procedure in importations, has
the right to examine the goods before paying. In this case, the right to examine the
goods is a condition precedent to paying the price after ownership has passed.
b. It should be noted that even in a C.O.D. sale, the buyer is allowed to examine the
goods before payment of the price should it have been so agreed upon or if it is
permitted by usage.
Right of examination not absolute. —the seller is bound to afford the buyer a
reasonable opportunity of examining the goods only “on request.” (par. 2.) If the seller
refused to allow opportunity for the inspection, the buyer may rescind the contract and
recover the price or any part of it that he has paid.
Right to be exercised within reasonable time. — such opportunity to examine should be
availed of within a reasonable time in order that the seller may not suffer undue delay
or prejudice.
Waiver of right to examine before payment. — The right of inspection may, of course,
be given up by the buyer by stipulation. need not be in express terms.
2. Acceptance not a bar for damages
1586 In the absence of express or implied agreement of the parties,
acceptance of the goods by the buyer shall not discharge the seller
from liability in damages or other legal remedy for breach of any
promise or warranty in the contract of sale. But, if, after acceptance
of the goods, the buyer fails to give notice to the seller of the breach
in any promise of warranty within a reasonable time after the buyer
knows, or ought to know of such breach, the seller shall not be
liable therefor
unless otherwise agreed, acceptance of the goods by the buyer (Art. 1585.) does not
discharge the seller from liability in damages or other legal remedy (like rescission) for
breach of any promise (Art. 1546.) or warranty.
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Notice to seller of breach of promise or warranty
a. Necessity. — Article 1586 requires the buyer, in order tohold the seller liable for
breach of promise or warranty, to give notice to the seller of any such breach
within a reasonable time.
b. Purpose. — The purpose is to protect the seller against belated claims which
prevent him from making prompt investigation to determine the cause and extent
of his liability and also to enable him to take any other immediate steps that his
interest may require.
3. No obligation to return goods wrongfully delivered
1587 Unless otherwise agreed, where goods are delivered to the buyer,
and he refuses to accept
them, having the right so to do, he is not bound to return them to
the seller, but it is sufficient if he notifies the seller that he refuses
to accept them. If he voluntarily constitutes himself a depositary
thereof, he shall be liable as such.
Duty of buyer to take care of goods without obligation to return. — If the goods have
been sent to the buyer and he rightfully refuses to accept them, as in the case where
the goods are of not the kind and quality agreed upon, he is in the position of a bailee
who has had goods thrust upon him without his assent
Duty of seller to take delivery of goods. — After notice that the goods have not been
and will not be accepted, the seller must have the burden of taking delivery of said
goods.
Seller’s risk of loss of goods. — While the goods remain in the buyer’s possession under
these circumstances, they are, of course, at the seller’s risk. But the buyer is not
deemed and is not liable as a depositary, unless he voluntarily constitutes himself as
such.
Right of buyer to resell goods. — Should the seller, when notified to take delivery of the
goods fails to do so, the buyer may resell the goods.
4. Right to suspension of payment of price
1590 Should the vendee be disturbed in the possession or ownership of
the thing acquired, or should he have 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
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vendor has caused the disturbance or danger to cease, unless the
latter gives security for the
return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound
to make the payment.
A mere act of trespass shall not authorize the suspension of the
payment of the price.
When vendee has right. — The vendee, under this article, may suspend the payment of
the price in two cases only:
a. if he is disturbed in the possession or ownership of the thing bought; or
b. if he has a well-grounded fear that his possession or ownership would be disturbed
by a vindicatory action or foreclosure of mortgage
When vendee has no right. — In the following cases, the vendee cannot suspend the
payment of the price even if there is disturbance in his possession or ownership of the
thing sold:
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 (see Art. 1548, par. 3.);
c. if the vendor has caused the disturbance or danger to
d. if the disturbance is a mere act of trespass; and
e. if the vendee has fully paid the price
the vendee has no cause of action for rescission before final judgment the reason being
that otherwise, the vendor might become the victim of machinations between the
vendee and the third person.
5. When recission of sale or real property may be made
1591 Should the vendor have reasonable grounds to fear the loss of
immovable property sold and its price, he may immediately sue for
the rescission of the sale.
Should such ground not exist, the provisions of article 1191 shall be
observed
This article refers only to a sale of immovable or real property where the vendor has
good reasons to fear the loss of the property and its price. It contemplates a situation
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where there has been a delivery of the immovable property but the vendee has not yet
paid the price.
applicable to both cash sales and to sales in installments as it does not distinguish
between one and the other.
1592 In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon
the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him
either judicially or by a notarial act. After the demand, the court
may not grant him a new term.
As a general rule, the vendor may sue for rescission of the contract should the vendee
fail to pay the agreed price. (Art. 1191.) The sale of real property, however, is subject to
the stipulations agreed upon by the parties and to the provisions of Article 1592 which
speaks of non-payment of the purchase price as a resolutory condition.
Before a demand for rescission of the contract (for non-payment of the price) has been
made by the vendor, either judicially or by a notarial act, the vendee may still pay the
price even 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.
In a contract of sale, the remedy of the unpaid seller is either specific performance or
rescission with the right to claim damages in either case.
Court may grant vendee a new term. — The right to rescind is not absolute and the
court may extend the period for payment.
Vendor may waive his right. — The right of “automatic rescission” (subject to Article
1592 when applicable) stipulated in a contract of sale is subject to waiver
Written notice of cancellation must be given. — While judicia laction for the rescission
of contract is not necessary where the contract provides that it may be cancelled for
violation of its terms and conditions, there must be at least a written notice sent to the
defaulter informing him of the rescission
Breach must be substantial. — The general rule is that rescission of a contract will not
be permitted for a slight or causal breach but only for such substantial and fundamental
breach as would defeat the very object of the parties
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When 1592 is not applicable
a. Sale on installment of real estate
b. Contract to sell/conditional sale of real estate.
6. Recission in case of sale of movable thing
1593 With respect to movable property, the rescission of the sale shall of
right take place in the interest of the vendor, if the vendee, upon
the expiration of the period fixed for the delivery of the thing,
should not have appeared to receive it, or, having appeared, he
should not have tendered the price at the same time, unless a
longer period has been stipulated for its payment.
In the case of personal property (which has not yet been delivered to the vendee), the
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 a credit period for its
payment has been stipulated.
The reason for the difference is that personal properties are not capable of maintaining
a stable price in the market. Their prices are so changeable that any delay in their
disposal might cause the vendor a great prejudice
This is not true in the case of real property which has more or less stable price in the
market and the delay that might result from the requirement imposed on the vendor to
demand rescission before being entitled to rescind the contract will not in any way
prove detrimental to the interest of the vendor
II. ACTION FOR BREACH OF CONTRACT OF SALE OF GOODS
A. AVAILABLE REMEDIES ON THE PART OF THE SELLER
“Goods” include all chattels personal but not things in action or money of legal tender
in the Philippines. The term includes growing fruits or crops.
Actions for breach of the contract of sale of goods are governed primarily by the
provisions of Chapter 6 (Arts. 1595-1599.) and secondarily, by the other provisions of
the Title on sales so far as said provisions can apply. However, provisions concerning
the sale of immovable property have no application to the sale of goods.
Actions available in general
a. action by the seller for payment of the price (Art. 1595.);
b. action by the seller for damages for non-acceptance of the goods (1596)
c. action by the seller for rescission of the contract for breach thereof (Art. 1597.);
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d. action by the buyer for specific performance (Art. 1598.); and
e. action by the buyer for rescission or damages for breach of warranty. (Art. 1599.)
1. Action for payment of price
1595 Where, under a contract of sale, the ownership of the goods has
passed to the buyer, and he wrongfully neglects or refuses to pay
for the goods according to the terms of the contract of sale, the
seller may maintain an action against him for the price of the goods.
Where, under a contract of sale, the price is payable on a 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. But 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 contract of sale on his part or
an intention
not to perform it.
Although the ownership in the goods has not passed, if they cannot
readily be resold for a reasonable price, and if the provisions of
Article 1596, fourth paragraph, are not applicable, 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 may maintain an action for the
price.
three cases when an action for the price of the goods under a contract of sale can be
maintained by the seller:
1. when the ownership of the goods has passed to the buyer and he wrongfully
neglects or refuses to pay for the price (par. 1.);
2. when the price is payable on a certain day and the buyer wrongfully neglects or
refuses to pay such price, irrespective of delivery or of transfer of the title (par. 2.);
and
3. when the goods cannot readily be resold for a reasonable price and the buyer
wrongfully refuses to accept them even before the ownership in the goods has
passed, if the provisions of Article 1596, 4th paragraph (infra.) are not applicable.
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EDCA Publishing and Distributing Corp v. Santos
FACTS: The movable property in this case consists of books, which were bought from EDCA
by an impostor who sold it to SANTOS. EDCA Publishing sold to a person identifying himself
as Professor Jose Cruz who placed an order by telephone with the former for 406 books,
payable on delivery. EDCA prepared the corresponding invoice and delivered the books as
ordered, for which Cruz issued a personal check. On October 7, 1981, Cruz then sold the
120 of the books to Leonor Santos who asked for verification, and was then showed the
invoice for the books. Meanwhile, EDCA having become suspicious over a second order
placed by Cruz even before clearing of his first check, made inquiries with the De la Salle
College where he had claimed to be a dean and was informed that there was no such
person in its employ. Further verification revealed that Cruz had no more account or
deposit with the Philippine Amanah Bank, against which he had drawn the payment check.
EDCA then went to the police, which set a trap and arrested Cruz. Investigation disclosed his
real name as Tomas de la Peña and his sale of 120 of the books he had ordered from EDCA
to the private respondents.
ISSUE: Whether or not EDCA PUBLISHINGAND DISTRIBUTING CORP was unlawfully deprived
of the property?
HELD: NO, Santos was a good faith buyer after taking steps to verify the identity of the
seller. When she was showed the invoice, she reasonably believed that he was a legitimate
seller. With regard to unlawful deprivation, EDCA was not unlawfully deprived of the
property by mere failure of consideration. There was already a perfected contract of sale.
Proof was even substantiated when EDCA gave the invoice as proof of payment upon
delivery of the books. This did not amount to unlawful taking, because by the delivery of
EDCA to Cruz, ownership of the books already transferred to him. It would certainly be
unfair now to make the SANTOSES bear the prejudice sustained by EDCA as a result of its
own negligence. We cannot see the justice in transferring EDCA's loss to the SANTOSES who
had acted in good faith, and with proper care, when they bought the books from Cruz
Unless the contrary appears, the presumption is that the payment of the price and the
delivery of the goods were intended to be concurrent acts and the obligation of each
party to perform will be dependent upon the simultaneous performance by the other
party.
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If different times are fixed for the payment of the price and the delivery of the goods,
the general rule is that the act which is to be performed first is absolutely due on that
day, while the performance which is to take place on a later day is not due unless, as a
condition precedent, the prior performance has been rendered
2. Action for damages in case of non-acceptance of goods
1596 Where the buyer wrongfully neglects or refuses to accept and pay
for the goods, the seller may maintain an action against him for
damages for nonacceptance.
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.
If, while labor or expense of material amount is necessary on the
part of the seller to enable him to fulfill his obligations under the
contract of sale, the buyer repudiates the contract or notifies the
seller to proceed no further therewith, the buyer shall be liable to
the seller for labor performed or expenses made before receiving
notice of the buyer's repudiation or countermand. The profit the
seller would have made if the contract or the sale had been fully
performed shall be considered in awarding the damages
Seller’s right of action for damages.
a. If the buyer without lawful cause neglects or refuses to accept and pay for the
goods he agreed to buy, the seller may maintain an action against him for damages
for non-acceptance. (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 (see Art. 1595.), the
seller’s remedy will be also an action for damages.
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c. If the goods are not yet identified at the time of the contract or subsequently, the
seller’s right is necessarily confined to an action for damages.
Measure of damages for non-acceptance
a. Difference between contract price and market price. — The measure of damage is
the estimated loss directly and naturally resulting from the buyer’s breach of
contract. It is conveniently expressed by the formula — the difference between the
contract price, that is, the amount of the obligation which the buyer failed to fulfill,
and the market or current price, that is, the value of the goods which the seller has
left upon his hands.
b. Full amount of damage. — If there is no available market in which the goods can be
sold at the time, the seller is “entitled to the full amount of damage which he has
really sustained by a breach of the contract.”
c. Proximate damages. — Article 1596 (par. 3.) allows the seller under “special
circumstances” proximate damages of a greater amount than the difference
between the contract price and market price when such damages “may be
reasonably attributed to the non-performance of the obligation.”
Measure of damages for repudiation or countermand
a. the labor performed and expenses incurred for materials before receiving notice of
the buyer’s repudiation; and
b. the profit he would have realized if the sale had been fully performed. (Art. 1596,
par. 4.)
3. Action for rescission of contract
1597 Where the goods have not been delivered to the buyer, and the
buyer has repudiated the contract of sale, or has manifested his
inability to perform his obligations thereunder, or has committed a
breach thereof, the seller may totally rescind the contract of sale by
giving notice of his election so to do to the buyer
Seller’s right of rescission before delivery
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 the contract of sale.
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Article 1481 provides for a special cause for rescission of the contract of sale of goods.
Article 1534 (2nd par.) speaks of the rescission of title
If the goods have been delivered, the seller may recover the value of what he has given.
It should be noted that the seller is required to give notice of his election to seek
rescission. Formal notice is certainly not a requisite, and bringing an action promptly for
restitution is sufficient.
Non-performance of obligation by one of the parties authorizes the other to exercise
the right conferred upon him by the law, to elect to demand the performance of the
obligation or its rescission, together with damages in either event.
Rescission abrogates the contract from its inception and requires a mutual restitution
of benefits received.
The right of the seller to rescind the sale for non-performance on the part of the buyer
is not absolute.
a. The law subordinates it to the rights of third persons who are legally in the
possession of the object of the contract and to whom bad faith is not imputable.
b. Moreover, the general rule is that rescission of a contract will not be permitted for
a slight or casual breach but only for such substantial breach as would defeat the
very object of the parties in making the agreement
c. Except as provided in Article 1597, and in the absence of express stipulation
authorizing the seller to extrajudicially rescind a contract of sale, the seller cannot
unilaterally and extrajudicially rescind the contract
Ocampo v. CA
FACTS: Two (2) documents, an "Agreement to Sell Real Property" and a "Contract to Sell,"
covering the same parcel of land were executed by a seller in favor of two (2) different
buyers. Both buyers now assert against each other a better title to the property. In dispute
is an 18,260-square meter lot in the Poblacion of Tigbauan, Iloilo registered under OCT in
the name of seller Severino Tolosa and on 20 August 1974, Tolosa mortgaged the land to
the Philippine Veterans Bank and had the encumbrance annotated on his certificate of title.
On 17 March 1975, Tolosa and Ocampo, the latter being then represented by Teresa T.
Borres, entered into a contract whereby Tolosa undertook to sell the same parcel of land to
Ocampo not later than 15 May 1975 for P22,000.00, P1,000.00 of which was paid upon
execution thereof the parties entered into an "Agreement to Sell Real Property" 3 whereby
SALES89A |LDCS
Tolosa "sells, cedes and transfers" the land to Ocampo in consideration of P25,000.00,
P12,500.00 of which was paid upon signing of the deed and the balance to be due within six
(6) months. Before the six-month period to complete the payment of the purchase price
expired, Ocampo paid but only the total of P16,700.00. Nevertheless Tolosa accepted her
subsequent late payments amounting to P3,900.00. Meanwhile, the subject property was
involved in a boundary dispute. upon learning of the mortgage lien, Ocampo caused her
adverse claim to be annotated on Tolosa’s certificate of title On 3 June 1977, Tolosa and
Magdalena S. Villaruz executed a "Contract to Sell" 9 whereby Tolosa "sells, cedes,
transfers, and conveys" to Villaruz the same land. On 19 July 1977, Tolosa wrote Ocampo
offering to reimburse her what she paid provided she would sign a document canceling her
adverse claim. 10 Failing to convince Ocampo, Tolosa filed a petition in the Court of First
Instance of Iloilo to cancel the adverse claim of Ocampo Tolosa filed an action for "Breach
of Contract, Damages and Quieting of Title" against Teresa Borres. Borres claimed in her
answer that she was merely the agent of Ocampo who was the real party in interest. Borres
however died so that the trial court ordered her substitution by defendant Ocampo.
Magdalena S. Villaruz, then claiming to have already bought the land, intervened in the
case. CFI dismissed the complaint of Tolosa as well as the complaint in intervention of
Villaruz. The appellate court upheld the sale in favor of Villaruz
ISSUE: whether or not Tolosa did rescind the contract
HELD: Under Art. 1592 of the Civil Code, the failure of Ocampo to complete her payment of
the purchase price within the stipulated period merely accorded Tolosa the option to
rescind the contract of sale upon judicial or notarial demand. However, the letter of 2
August 1977 claimed to have been sent by Tolosa to Ocampo rescinding the contract of sale
was defective because it was not notarized and, more importantly, it was not proven to
have been received by Ocampo. Although the complaint sought the cancellation of
Ocampo’s adverse claim on Tolosa’s OCT and for the refund of the payments made, these
could not be equivalent to a rescission. In other words, seeking discharge from contractual
obligations and an offer for restitution is not the same as abrogation of the contract. To
rescind is "[t]o declare a contract void in its inception and to put an end to it as though it
never were." It is "[n]ot merely to terminate it and release parties from further obligations
to each other but to abrogate it from the beginning and restore parties to relative positions
which they would have occupied had no contract ever been made." Even assuming
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 SALES89A |LDCS

arguendo that Civil Case No. 12163 was a valid judicial demand, rescission is not granted as 2. Payment of a part only of the price does not destroy a seller’s lien. The seller
a matter of course Ocampo not only paid Tolosa a total of P20,600.00 but also discharged remains an unpaid seller even if title has passed to the buyer.
Tolosa’s mortgage debt Had not Tolosa ordered the Philippine Veterans Bank to return the 3. Payment by negotiable instrument. — According to paragraph 2 of Article 1249
mortgage debt payment by Ocampo, 28 the purchase price would have been deemed fully (Civil Code), “the delivery of promissory notes payable to order, or bills of exchange
paid. or other 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
4. Unpaid seller
impaired.”
a. Concept
b. Remedies of unpaid seller
1525 The seller of goods is deemed to be an unpaid seller within the
1526 Subject to the provisions of this Title, notwithstanding that the
meaning of this Title:
ownership in the goods may have passed to the buyer, the unpaid
(1) When the whole of the price has not been paid or tendered;
seller of goods, as such, has:
(2) When a bill of exchange or other negotiable instrument has been
(1) A lien on the goods or right to retain them for the price while he
received as conditional payment, and the condition on which it was
is in possession of them;
received has been broken by reason of the dishonor of the
(2) In case of the insolvency of the buyer, a right of stopping the
instrument, the insolvency of the buyer, or otherwise.
goods in transitu after he has parted with the possession of them;
In Articles 1525 to 1535 the term "seller" includes an agent of the
(3) A right of resale as limited by this Title;
seller to whom the bill of lading has been indorsed, or a consignor
(4) A right to rescind the sale as likewise limited by this Title.
or agent who has himself paid, or is directly responsible for the
Special remedies of an unpaid seller of goods
price, or any other person who is in the position of a seller.
1. A lien on the goods or right to retain them for the price while he is in possession of
unpaid seller is one who has not been paid or tendered the whole price or who has
them;
received a bill of exchange or other negotiable instrument as conditional payment and
2. In case of the insolvency of the buyer, a right of stopping the goods in transitu after
the condition on which it was received has been broken by reason of the dishonor of
he has parted with the possession of them;
the instrument
3. A right of resale as limited by this Title;
includes:
4. A right to rescind the sale as likewise limited by this Title.
(1) an agent of the seller;
(1) Lien on the goods
(2) a consignor or agent who has himself paid or is directly responsible for the price; or
When unpaid seller’s possessory lien may be exercised (1527)
(3) any other person in the position of the seller
1. Sale without stipulation as to credit. — In a credit sale, the seller binds himself to
Where whole of price has not been paid
give the goods over to the buyer without receiving at that time payment for them.
1. Tender of payment by buyer. — Although tender of payment is not the same as
Where there is a “stipulation as to credit” (No. 1.), a period for payment of the price
performance, and a seller to whom the price of goods has been tendered is strictly
has been fixed in the contract.
unpaid, and can, therefore, bring an action subsequently for the price, which he has
2. Expiration of term of credit. — Even where the parties agree upon a sale on credit,
refused, yet tender destroys the seller’s lien. Accordingly, so far as concerns his
the seller’s right of lien may be exercised. By the nature of a credit sale, the buyer is
rights against the goods, he is not an unpaid seller after the tender of the price.
entitled to possession of the goods without paying the price; but if he fails to

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exercise his right until the term of credit has expired and the price becomes due, he
loses the right which he theretofore had.
3. Insolvency of the buyer. — The insolvency of the buyer is another situation where
the lien of the seller in possession is revived even though the time for payment of
the price has not yet arrived. This doctrine is only an application of a general
principle in the law of contracts that when one party to a bilateral contract is
incapacitated from performing his part of the agreement, the other party also is
excused from performing. It should be noticed that insolvency does not dissolve the
bargain; it merely revives the seller’s lien.
Lien generally not lost by part delivery - When part of the goods are delivered, the
unpaid seller has a lien upon the remainder for the proportion of the price which is due
on account of the goods so retained. However, if the delivery of the part is intended as
symbolical delivery of the whole, and, therefore, a waiver of any right of retention as to
the remainder, the lien is lost. (1528)
When unpaid seller loses possessory lien. (1529)
1. Delivery to agent or bailee of buyer
2. Possession by buyer or his agent
3. Waiver of the lien
Revival of lien after delivery
1. If the buyer refuses to receive the goods after they have been delivered to a carrier
or other bailee on his behalf, though the seller has parted with both the ownership
and the possession, he may reclaim the goods and revest himself with his lien.
2. if the buyer returns the goods in wrongful repudiation of the sale, the lien is
revived.
(2) Right of stoppage in transit
Right of seller to stop goods in transit (1530)
1. he may resume possession of the goods while they are in transit, when the buyer is
or becomes insolvent. The right is exercised either by obtaining actual possession of
the goods or by giving notice of his claim to the carrier or other bailee in possession
The unpaid seller exercising his right of stoppage in transitu becomes entitled to the
same rights to the goods as if he had never parted with the possession thereof.
Take note that the buyer’s insolvency need not be judicially declared
2. Requisites for the exercise of right of stoppage in transitu.
SALES89A |LDCS
a. The seller must be unpaid (Art. 1525.);
b. The buyer must be insolvent;
c. The goods must be in transit (Art. 1531.);
d. The seller must either actually take possession of the goods sold or give notice
of his claim to the carrier or other person in possession (Art. 1532, par. 1.);
e. The seller must surrender the negotiable document of title, if any, issued by the
carrier or bailee (Ibid., par. 2.); and
f. The seller must bear the expenses of delivery of the goods after the exercise of
the right
The essential basis of the right of stoppage in transitu is clearly the injustice of allowing
the buyer to acquire ownership and possession of the goods when he has not paid and,
owing to his insolvency, cannot pay the price which was to be given in return for the
goods. In other words, the fundamental basis of the right is the far-reaching principle
allowing rescission and restitution where there is actual or prospective failure of
consideration
When goods are in transit (1531)
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.
When goods are no longer in transit (1531)
1. After delivery to the buyer or his agent in that behalf;
2. If the buyer or his agent obtains possession of the goods at a point before the
destination originally fixed;
3. If the carrier or bailee acknowledges to hold the goods on behalf of the buyer; and
4. If the carrier or bailee wrongfully refuses to deliver the goods to the buyer
The right to stop the goods may be terminated not simply by delivery to the buyer, but
by attornment of the bailee to the buyer.
The carrier is not allowed to enlarge the seller’s right by wrongfully refusing to deliver
or attorn as the buyer’s agent. But a rightful refusal by the carrier, based for instance,
on the refusal of the buyer or his agent to pay the freight will not terminate the right
to stop.
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Chartered by the buyer. — The mere fact that the carrier is chartered by the buyer
does not make a delivery to the carrier a delivery to the buyer
Owned by the buyer. — As delivery to an agent, other than one whose only duty is to
forward the goods, is a delivery to the principal, delivery to the buyer’s servant who is
under a general duty to obey his master’s order, is necessarily a delivery to the buyer.
Hence, delivery to a vessel belonging to the buyer is delivery to the buyer.
Partial delivery - seller may still exercise his right of lien on the remainder after part of
the goods had been delivered.
Ways of exercising the right to stop (1532)
The seller may exercise the right of stoppage in transitu either:
1. by taking actual possession of the goods.
2. by giving notice of his claim to the carrier or bailee
If the goods are covered by a negotiable document of title, the carrier or bailee has no
obligation to deliver the goods to the seller unless such document is first surrendered
for cancellation
(3) Right of Resale
When resale allowable (1533)
1. where the goods are perishable in nature;
2. where the right to resell is expressly reserved in case the buyer should make a
default; and
3. where the buyer delays in the payment of the price for an unreasonable time
Effect of resale. — In case of resale, the seller is not liable for any profit made by such
resale; but if he sells for less than the price, he has a right to sue for the balance. As
against the original buyer, the new buyer acquires a good title to the goods.
Notice of resale not essential. — The seller’s right to resell the goods for the buyer’s
account may depend to some extent upon the length of time the buyer has been in
default
Manner of resale. — The law “is satisfied with a fair sale made in good faith according
to the established business methods with no attempt totake advantage of the vendee
(4) Right to rescind
When seller may rescind (1534)
1. where the right to rescind is expressly reserved in case the buyer should make a
default
SALES89A |LDCS
2. where the buyer delays in the payment of the price for an unreasonable time
Effect of rescission. — In the case of rescission, the seller resumes ownership in the
goods. While the seller shall not be liable to the buyer upon the contract of sale, the
latter, however, may be made liable to the seller for damages for any loss occasioned
by the breach of contract.
Manner of rescission. — An election by the seller to rescind may be manifested by
notice to the buyer or by some other overt act showing an intention to rescind.
Effect of sale of goods subject to lien or stoppage in transit (1535)
1. Where goods not covered by negotiable document of title. — It is fundamental, as a
general rule, that a seller can give no larger right than he has. When, therefore,
goods are subject to a legal lien, as they are when an unpaid seller is in possession
of them, a purchaser from the original buyer can acquire only such right as the
buyer then had.
2. Where goods covered by negotiable document of title. — If, however, the goods
are covered by a negotiable document of title, the seller’s lien cannot prevail
against the rights of a purchaser for value in good faith to whom the document has
been indorsed.
c. Recto Law (Sales of Movables on installments)
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 vendee's failure to pay cover two or
more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's 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
Remedies of vendor in sale of personal property payable in installments
1. elect fulfillment upon the vendee’s failure to pay; or
2. cancel the sale, if the vendee shall have failed to pay two or more installments; or
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3. foreclose the chattel mortgage, if one has been constituted, if the vendee shall have
failed to pay two or more installments.
Right of vendor to recover unpaid balance of purchase price.
1. Remedy of specific performance
2. Remedy of cancellation.
3. Remedy of foreclosure
Sale or financing of real estate on installment payments.
1. Rights of buyer. — In transactions or contracts involving the sale or financing of real
estate on installment payments including residential condominium apartments, the
following are the rights given to the buyer who has paid at least two (2) years of
installments in case he defaults in the payment of succeeding payments:
a. To pay without additional interest, the unpaid installments due within the total grace
period earned by him fixed at the rate of one (1)-month grace period for every one year
of installment payments made. This right however, shall be exercised by him only once
in every five (5) years of the life of the contract and its extension, if any
b. 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.
c. The buyer has the right to sell his right or assign the same before actual cancellation of
the contract and to pay in advance any unpaid installment anytime without interest and
to have such full payment of the purchase price annotated in the certificate of title
covering the property.
2. Conditions for cancellation of sale by seller. — The actual cancellation shall take place
after 30 days from receipt by the buyer of the notice of cancellation or the demand for
rescission by a notarial act and upon full payment of the cash surrender value to the
buyer. Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made
3. Installment sales not covered. — The Act excludes from it operation sales on
installments of industrial lots, commercial buildings, and sales to tenants under the
Code of Agrarian Reforms.
4. Purpose of the law. — The purpose is to protect buyers of real estate on installment
payments against onerous and oppressive conditions
SALES89A |LDCS
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
Lease of personal property with option to buy.
1. Nature of transaction. — Leases of personal property with option to buy on the
part of the lessee who takes possession or enjoyment of the property leased are
really sales of personalty payable in installments
2. Purpose of provision. — The evident purpose of Article 1485 is to prevent vendors
from resorting to this form of contract which usually is in reality contract of sale of
personal property payable in installments in contravention of the provisions of
Article 1484
3. Repossession by lessor need not be through court action. — Even where the lessee
voluntarily delivers the property to the lessor, the case is not taken out of the
purview of Article 1485 if he does so in obedience to the lessor’s demands. The
article does not require that the deprivation of the enjoyment of the property be
brought about through court action
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.
In sales of personal property by installments or leases of personal property with option
to buy, the parties may stipulate that the installments or rents paid are not to be
returned. Such a stipulation is valid “insofar as the same may not be unconscionable
under the circumstances’’; otherwise, the court has the power to order the return of a
portion of the total amount paid in installments or rents
Southern Motors Inc v. Moscoso
FACTS: In June 1957, plaintiff-appellee, Southern Motors, Inc. (Southern Motors) sold to
defendant-appellant Angel Moscoso one Chevrolet truck, on installment basis, for
P6,445.00. Upon making a down payment, the defendant executed a promisory note for
the sum of P4,915,00, representing the unpaid balance of the purchase price to secure the
payment of which, a chattel mortgage was constituted on the truck in favor of Southern
Motors. Of the P4,915,00, defendant was only able to pay a total of P550.00, which
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P110.00 was applied to the interest up to August 15, and P400.00 to the principal, thus
leaving an unpaid balance of P4,475.00. The defendant failed to pay 3 more installments
on the balance of the purchase price. In November 1957, the Southern Motors filed a
complaint against the Moscoso to recover the unpaid balance of the promissory note, and
the lower court issued a writ of attachment on Moscoso’s properties. The Sheriff of San
Jose, Antique, attach the Chevrolet truck, as well as a house and lot belonging to Moscoso,
and said truck was brought to the Southern Motors’ compound in Iloilo City for safe
keeping. The Provincial Sheriff of Iloilo sold the said truck on January 2, 1958 at a public
auction in which Southern Motors itself was the only bidder for P1,000.00. In March 1958,
the trial court condemned the defendant Moscoso to pay the plaintiff Southern Motors
the unpaid balance of P4,475.00 with interest at the rate of 12% per annum from August
16, 1957, until fully paid. While Southern Motors claims that in filing the complaint,
demanding payment of the unpaid balance of the purchase price, it has availed of the first
remedy provided in Article 1484 of the new Civil Code i.e. to exact fulfillment of the
obligation (specific performance), Mosocoso, on the other hand, contends that Southern
Motors had availed itself of the third remedy viz, the foreclosure of the chattel mortgage
on the truck.
ISSUE: Which remedy under the Civil Code did the vendor Southern Motors avail?
HELD: The Supreme Court, in affirming the decision of the lower court, found that there is
nothing unlawful or irregular in appellee Southern Motors's act of attaching the mortgaged
truck itself. Since it has chosen to exact the fulfillment of the appellant Moscoso's
obligation, Southern Motors may enforce execution of the judgment that may be favorable
to it, on all personal and real properties of the latter not exempt from execution sufficient
to satisfy such judgment. No one can successfully contest that the attachment of a house
and lot at San Jose, Antique was merelly an incident to all ordinary civil action. (Sections 1
& 11, Rule 59; sec. 16 Rule 39.) The mortgage creditor may recover judgment on the
mortgage debt and cause an execution on the mortgaged property and may cause an
attachment to be issued and levied on such property, upon beginning his civil action.
Nonato v. IAC
FACTS: In 1976, Spouses Restituto Nonato and Ester Nonato purchased a volkswagen from
the People’s Car Inc on installment basis; To secure their complete payment, Nonato
SALES89A |LDCS
executed a promissory note and a chattel mortgage in favor of People’s Car Inc.
Subsequently, People’s Car Inc assigned its rights and interest over the note and mortagge
in favor of Investor’s Finance Corp (IFC). For failure of the spouses to pay two or more
installments, despite demands, the car was repossessed by IFC. Despite repossession, IFC
still demanded from Nonato that they pay the balance of the price of the car. IFC, then,
filed a complaint for the payment of the price of the car with damages Nonato, in their
defense, argued that when the company repossessed the car, IFC had, by that act,
effectively cancelled the sale of the vehicle. As such, it was barred from exacting the
recovery of the unpaid balance of the purchase price as mandated by Art 1484. The trial
court rendered in favor of IFC and ordered the spouses Nonato pay the balance of the
purchase price of the car with interest. CA affirmed the same.
ISSUE: WON a vendor or his assignee, who had cancelled the sale of a motor vehicle for
failure of the buyer to pay two or more of the stipulated installments, may also demand
payment of the balance of the purchase price
HELD: No. The applicable law in the case at bar is Art 1484 which provides that:
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 vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's 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.
In the present case, it is not disputed that IFC had taken possession of the car purchased
by the Nonatos after the spouses defaulted in their payments. The defense of IFC that it
the repossession of the vehicle was only for the purpose of appraising its value and for
storage and safekeeping pending full payment of the spouses is untenable. The receipt
issued by IFC to the spouses when it took possession of the vehicle that the vehicle could
be redeemed within 15 days. This could only mean that should the spouses fail to redeem
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the car within the period provided, IFC would retain permanent possession of the vehicle.
IFC even notified the spouses Nonato that the value of the car was not sufficient to cover
the balance of the purchase price and there was no attempt at all on the part of the
company to return the car. The acts performed by IFC are consistent with the conclusion
that it had opted to cancel the sale of the vehicle. Therefore, it is barred from exacting
payment from the petitioners of the balance of the price of the vehicle which it had
already repossessed
Ridad v. Filipinas Investment and Finance Corp
Facts: The spouses Ridad purchased from the Supreme Sales Development Corporation
two (2) brand new Ford Consul Sedans complete with accessories. To secure payment
thereof, plaintiffs executed on the same date a promissory note covering the purchase
price and a deed of chattel mortgage not only on the two vehicles purchased but also on
another car (Chevrolet) and their franchise or certificate of public convenience granted by
the defunct Public Service Commission for the operation of a taxi fleet with Filipinas
Investment. Due to the failure of the plaintiffs to pay their monthly installments as per
promissory note, Filipinas Investment foreclosed on the chattel mortgage on the Ford
Consul Sedans. The foreclosure sale had a deficiency. Consequently, the corporation
foreclosed the mortgage constituted on the (Chevrolet) and their franchise or certificate of
public convenience.
Issue: Whether Filipinas Investment is precluded from foreclosing the second mortgage to
recover the deficiency on the first mortgage
Held: No. The vendor of personal property sold on the installment basis is precluded, after
foreclosing the chattel mortgage on the thing sold from having a recourse against the
additional security put up by a third party to guarantee the purchaser’s performance of his
obligation on the theory that to sustain the same would overlook the fact that if the
guarantor should be compelled to pay the balance of the purchase price, said guarantor
will in turn be entitled to recover what he has paid from the debtor-vendee, and ultimately
it will be the latter who will be made to bear the payment of the of the balance of the
price, despite the earlier foreclosure of the chattel mortgage given by him, thereby
indirectly subverting the protection given the latter. If the vendor under such circumstance
is prohibited from having a recourse against the additional security for reasons therein
SALES89A |LDCS
stated, there is no ground why such vendor should not likewise be precluded from further
extrajudicially foreclosing the additional security put up by the vendees themselves, as in
the instant case, it being tantamount to a further action 5 that would violate Article 1484
of the Civil Code, for then is actually no between an additional security put up by the
vendee himself and such security put up by a third party insofar as how the burden would
ultimately fall on the vendee himself is concerned.
Borbon II v. Servicewide Specialist Inc
Facts: Daniel L. Borbon and Francisco Borbon signed a promissory with a stipulation,
among others that the loan will be to be payable without need of notice or demand, in
installments of the amounts following and at the dates hereinafter set forth. Furthermore,
the note stipulated that the attorney’s services are availed of, an additional sum equal to
twenty five percent (25%) of the total sum due thereon, which shall not be less than five
hundred pesos, shall be paid to the holder hereof for attorney’s fees plus an additional
sum equivalent to twenty five percent (25%) of the total sum due which likewise shall not
be less than five hundred pesos for liquidated damages, aside from expenses of collection
and the legal costs provided for in the Rules of Court. For their defense, the defendants
claim that what they intended to buy from Pangasinan Auto Mart was a jeepney type Isuzu
K. C. Cab. The vehicle that they bought was not delivered (pp. 11-12, tsn, Oct. 17, 1985).
Instead, through misrepresentation and machination, the Pangasinan Motor, Inc. delivered
an Isuzu crew cab, as this is the unit available at their warehouse. Later the representative
of Pangasinan Auto Mart, Inc. (assignor) told the defendants that their available stock is an
Isuzu Cab but minus the rear body, which the defendants agreed to deliver with the
understanding that the Pangasinan Auto Mart, Inc. will refund the defendants the amount
of P10,000.00 to have the rear body completed.
Issue: Whether or not the assignment of credit with a third party voids the chattel
mortgage
Held: When the seller assigns his credit to another person, the latter is likewise bound by
the same law. Accordingly, when the assignee forecloses on the mortgage, there can be
no further recovery of the deficiency,and the seller-mortgagee is deemed to have
renounced any right thereto.A contrario, in the event the seller-mortgagee first seeks,
instead, the enforcement of the additional mortgages, guarantees or other security
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arrangements, he must then be held to have lost by waiver or non-choice his lien on the
chattel mortgage of the personal property sold by any mortgaged back to him, although,
similar to an action for specific performance, he may still levy on it. In ordinary alternative
obligations, a mere choice categorically and unequivocally made and then communicated
by the person entitled to exercise the 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. This rule, in essence, is the difference between
alternative obligations, on the one hand, and alternative remedies, upon the other hand,
where, in the latter case, the choice generally becomes conclusive only upon the exercise
of the remedy. For instance, in one of the remedies expressed in Article 1484 of the Civil
Code, it is only when there has been a foreclosure of the chattel mortgage that the
vendee-mortgagor would be permitted to escape from a deficiency liability. Thus, if the
case is one for specific performance, even when this action is selected after the vendee
has refused to surrender the mortgaged property to permit an extrajudicial foreclosure,
that property may still be levied on execution and an alias writ may be issued if the
proceeds thereof are insufficient to satisfy the judgment credit. So, also, a mere demand
to surrender the object which is not heeded by the mortgagor will not amount to a
foreclosure, but the repossession thereof by the vendor-mortgagee would have the effect
of foreclosure.
Pascual v. Universal Motors Corp
FACTS: Plaintiff-appellee spouses Lorenzo Pascual and Leonila Torres (spouses Pasqual)
executed the real estate mortgage subject matter of this complaint on December 14, 1960
to secure the payment of the indebtedness of PDP Transit, Inc. (PDP Trans.) for the
purchase of 5 units of Mercedes Benz trucks, with a total purchase price or principal
obligation of P152,506.50 which was to bear interest at 1% per month starting that day, but
the plaintiffs' guarantee is not to exceed P50,000.00 which is the value of the mortgage.
The PDP Trans., as the spouses Pasqual's principal, paid to defendant-appellant Universal
Motors Corporation (Universal Motors) the sum of P92,964.91 on April 5, 1961 for two of
the five Mercedes Benz trucks and on May 22, 1961 for the remaining three, thus leaving a
balance of P68,641.69 including interest due on February 8, 1965. On March 19, 1965,
Universal Motors filed this complaint with the CFI of Manila against the PDP Trans. to
collect the balance due under the Chattel Mortgages and to repossess all the units sold to
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PDP Trans. as the spouse Pascual’s principal, including the 5 units guaranteed under the
subject Real (Estate) Mortgage. During the hearinbg, Universal Motors admitted that it was
able to repossess all the units sold to the latter, including the 5 units guaranteed by the
subject real estate mortgage, and to foreclose all the chattel mortgages constituted
thereon, resulting in the sale of the trucks at public auction. As the real estate mortgagors,
the spouses Pascual filed an action with the CFI of Quezon City for the cancellation of the
mortgage they constituted on 2 parcels of land in favor of the Universal Motors to
guarantee the obligation of PDP Trans. to the amount of P50,000. The said CFI rendered
judgment in favor of the spouses Pascual and ordered the cancellation of the mortgage.
ISSUE: Was Article 1484 of the New Civil Code applicable in the case at bar?
HELD: The Supreme Court affirmed the lower court’s decision. Appellant Universal Motors
argues that Article 1484 is not applicable to the case at bar because there is no evidence on
record that the purchase by PDP Trans. of the 5 trucks was payable in installments and that
the PDP Trans. had failed to pay two or more installments. Universal Motors also contends
that what Article 1484 prohibits is for the vendor to recover from the purchaser the unpaid
balance of the price after he has foreclosed the chattel mortgage on the thing sold, but not
a recourse against the security put up by a third party. The Supreme Court concluded to
the contrary, saying that the first issue was whether or not the sale was one on
installments. The lower court found that it was, and that there was failure to pay two or
more installments, a finding which is not subject to review by the Supreme Court. The next
contention is that what article 1484 withholds from the vendor is “the right to recover any
deficiency from the purchaser after the foreclosure of the chattel mortgage,” and not a
“recourse to the additional security put up by a third party to guarantee the purchaser's
performance of his obligation.” But the Supreme Court to sustain this argument of the
appellant would be to indirectly subvert and public policy overturn the protection given by
Article 1484.
Magna Financial Services Group v. Colorina
FACTS: Colarina bought from petitioner a Suzuki Multicab payable on installments and
secured by an integrated promissory note and a deed of chattel mortgage. Upon
respondent’s default in payment, petitioner filed a complaint for Foreclosure of the Chattel
Mortgage with Replevin. Colarina then voluntarily surrendered the physical possession of
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the vehicle. Failing to answer within the reglementary perion, the Municipal Trial Court
ordered respondent to pay petitioner the unpaid balance of the vehicle’s purchase price.
This was affirmed by the Regional Trial Court. The Court of Appeals, on the other hand,
reversed and set aside the decisions of the lower courts granting the payment of the
payment of the unpaid balance for being inconsistent with petitioner’s complaint for
foreclosure.
ISSUE: Whether or not the foreclosure of mortgage, as an exercise of the 3rd remedy in
Article 1484, is in nature an action for sum of money with execution of the security.
HELD: No. A Contract of chattel mortgage is in the nature of a conditional sale of personal
property given as a security for the payment of a debt, or the performance of some other
obligation specified therin, the condition being that the sale shall be void upon the seller
paying to the purchaser a sum of money or doing some other act named. If the condition is
performed according to its terms, the mortgage and sale immediately become void, and the
mortgage is thereby divested of his title. But in case of nonpayment, foreclosure is one of
the alternative remedies available to a mortgagee. Since the petitioner has undeniably
elected a remedy of foreclosure under Article 1484(3) of the Civil Code, it is bound by its
election and thus may not be allowed to change what it has opted for nor to ask for more.
Filipinas investment and Finance Corp v. Vitug
FACTS: Respondent Vitug bought a four-door Consul sedan for Php 14,605. He executed a
promissory note providing for monthly installment payment and at the same time
constituted a chattel mortgage over the vehicle. On the same day he assigned his
negotiated the promissory note in favor of herein petitioner Filipinas Investment, assigning
thereto all his rights, including a right of recourse against co-defendant Supreme Sales.Vitug
predictably failed to pay for the car, and petitioner applied for a writ of replevin, but this
was negated when Vitug voluntarily surrendered the vehicle. The carwas sold in public
auction but the proceeds left a balance of Php 8, 349.35, which petitioner now wishes to
collect from co-defendant Supreme Sales.
ISSUE: WON petitioner can collect on the balance from Supreme Sales despite the provision
of the Recto Law
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HELD: YES. The transaction between appellant and appellee was purely an ordinary
discounting transaction whereby the promissory note executed by defendant Vitug was
negotiated by appellee in favor of appellant for a valuable consideration at a certain
discount, accompanied by an assignment also of the chattel mortgage executedby said
defendant to secure the payment of his promissory note and with the express stipulation
that should there be any deficiency, recourse could be had against appellee.Stated
otherwise, the remedy presently being sought is not against the buyer of the car or the
defendant Vitug but against the seller, independent of whether or not such seller may have
a right of recovery against the buyer, which, in this case, he does not have under the Recto
Law
d. Maceda Law (RA 6552)
Sec 3 In all transactions or contracts involving the sale or financing of real
estate on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and
sales to tenants under Republic Act Numbered Thirty-eight hundred
forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due
within the total grace period earned by him which is hereby fixed at
the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its
extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer
the cash surrender value of the payments on the property
equivalent to fifty per cent of the total payments made, and, after
five years of installments, an additional five per cent every year but
not to exceed ninety per cent of the total payments made: Provided,
That the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the buyer.
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Down payments, deposits or options on the contract shall be have invalidly effected the cancellation of the contract. RA 6552 (Realty Installment Buyer
included in the computation of the total number of installment Protection Act) states that any cancellation must be done in conformity with the
payments made. requirements therein prescribed. In addition to the notarial act of rescission, the seller is
Sec 4 In case where less than two years of installments were paid, the required to refund to the buyer the cash surrender value of the payments on the property.
seller shall give the buyer a grace period of not less than sixty days The actual cancellation of the contract can only be deemed to take place upon the expiry of
from the date the installment became due. a 30day period following the receipt by the buyer of the notice of cancellation or demand
If the buyer fails to pay the installments due at the expiration of the for rescission by a notarial act and the full payment of the cash surrender value
grace period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
Sec 5 Under Section 3 and 4, the buyer shall have 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. The deed of sale or
assignment shall be done by notarial act.
Sec 6 The buyer shall have the right to pay in advance any installment or
the 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 covering the property.
Olympia Housing v. Panasiatic

FACTS: Olympia Housing, Inc. agreed to sell a condominium unit to Ma. Nelida Galvez-
Ycasiano for P2,340,000 payable in installments of P33,657.40 per month and schedule of
payments were also agreed on. Pursuant to the contract, defendant made a deposit of
P100,000 and 50% down payment on the dates agreed. She made several payments in cash
and thru cash credit memos issued by plaintiff representing plane tickets bought from
Panasiatic Travel Corp, owned by Ma. Nelida. When defendant failed to pay installments
which amounted to P1,924,345.52 even after demand, plaintiff allegedly rescinded the
contract by a Notarial Act of Rescission.

ISSUE: whether or not the contract to sell executed in favor of respondent buyer had been
validly cancelled or rescinded

HELD: no cancellation took place. The notarial rescission was not sent to respondents prior
to the institution of the case for reconveyance but merely served on respondents by way of
an attachment to the complaint. In any case, a notarial rescission, standing alone, could not
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