Sales (Art.

1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

RECTO LAW: SALES OF MOVABLES BY INSTALLMENT

Art. 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. (1454-A-a)1
Requisites before Art. 1484 May Be Applied
1. There must be a contract
2. The contract must be one of sale (absolute sale, not a pacto de retro
transaction, where redemption id effected in instalment
3. What is sold is personal property (sale of real property in installments
is governed by Maceda Law)
4. The sale must be on the installment plan (an installment- is any part
or portion of the buying price, including the down payment)
Take Note: If the sale is for cash or on straight terms (here after
an initial payment, the balance is paid in its totality at the time
specified, say, two months or three months later--- this is also
considered a cash sale so Art. 1484 does not apply)
Rationale for the Recto Law
o Prevent abuses in the foreclosure of chattel mortgages, such as when
mortgagee-creditors foreclosed mortgaged property, bought them at a
low price (on purpose,) then prosecuted the mortgagor-debtors to
recover the deficiencies
Alternative Remedies
o Remedies are not cumulative, they are alternative. If one is exercised,
the others cannot be made use of. Hence, the election of one is a
waiver of the right to resort to the others.
o But for this doctrine to apply, the remedy must already have been fully
exercised. If after retaking possession of the chattel, the seller desists
from foreclosure, he can still avail of himself of another remedy.
Examples:
(1) Tom bought a particular automobile on the installment plan. Tom defaulted
1

There must be fact of foreclosure and actual sale of the mortgaged

chattel in order to bar the recovery by the vendor of the balance (of
the purchasers outstanding obligation not satisfied by the sale).

in the payment of one of the installments. Has the seller, Jerry, the right to
exact fulfilment of the obligation to pay?
Ans: Yes. Remedy 1 does not require default in two or more installments,
unlike remedies Nos. 2 and 3. How much can be successfully demanded?
Generally, only the installments defaulted can be recovered, unless there is an
acceleration clause or if the debtor loses the benefits of the terms. Should
there be no DEFICIENCY in the amount collected at the levy on execution,
said deficiency can still be collected. Here, there is no foreclosure of any
chattel mortgage.
(2) Harry bought a particular automobile but defaulted in the payment of two
installments. May the seller ask for the cancellation (resolution) of the sale?
Ans: Yes, because two installments are already in default.
(3) Ricky bought a car on the installment plan, and as security, executed a
chattel mortgage on it. Ricky failed to pay two installments. The seller
foreclosed the mortgage, but the sum he obtained was less than what B still
owed him. It had been previously agreed in the deed of sale that Ricky would
be liable for any deficiency in this matter. May the seller still sue for the
deficiency?
Ans: No, for the law says that after foreclosure, the seller-mortgagee shall
have no further action against the purchaser to recover any unpaid balance of
the price. The contrary stipulation in their contract is VOID.
*FORECLOSURE here means foreclosure by the usual methods including the
sale of the goods at a public auction.

Resort to Rescission After Choosing Specific Performance

General Rule: When the seller has chosen specific performance, he can
no longer seek for rescission or foreclosure of the chattel mortgage
constituted on the thing sold
Exception: Even if the seller had chosen specific performance, if the
same has become impossible, the seller may still choose rescission (Art.
1191)

Cancellation Requires Mutual Restitution (Remedy No. 2)

o When Rescission is Deemed Chosen---when the seller has clearly
indicated- to end the contract such as when--1. He sends a notice of rescission
2. He takes possession of the subject matter of the sale; or
3. He files an action for rescission
o Forfeiture of installment or rentals

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

General Rule: Rescission creates the obligation to return the things

which were the object of the contract, together with the fruits, and the
price with interests. It can be carried out only when he who demands
rescission can return whatever he may be obliged to restore (Art.
1385)
Exception: 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 (Art. 1486)
Examples:
(1) When the seller of a car on installment asks for cancellation of the sale, the
car must be returned to him, and he in turn must give back all installments he
has received, including the down payment.
(2) Suppose the car has so deteriorated, i.e. been so cannibalized that the
value at which it may be resold is much less than the balance of the purchase
price (e.g. while the unpaid balance may still be 20K, the value of the returned
car, in view of its sorry state, may be only 80k), may seller still recover the
difference?
Ans: Yes. After all, the rule against the recovery of the deficiency comes into
play only if the remedy of foreclosure is used. In addition, under 1191, in case
of resolution, the aggrieved party may resort to either SPECIAL
PERFORMANCE PLUS DAMAGES, or RESCISSION PLUS DAMAGES.
Instances When Art. 1484 Cannot Be Applied
o To real estate mortgage since real mortgage may only be foreclosed
in conformity with special provisions. Moreover, while in Art. 1484 the
creditor is given the option to seize the object of transaction, this is
not so in the case of a real estate mortgage.
o To sale of personal property in straight terms (one in which the
balance, after the payment of initial sum should be paid in its totality
at the time specified) since the mortgagee-seller will still be entitled to
recover the unpaid balance.
o To actions for replevin
The Recto Law also covers leases with the option to purchase.

Foreclosure of the Chattel Mortgage on the thing sold if vendee shall

have failed two or more installment (Remedy No. 3)
o In this case, there shall be no deficiency judgment
o When deemed chosen: at the time of actual sale of the subject
property at public auction pursuant to the foreclosure proceedings
commenced.

Prior to foreclosure and actual sale at public auction : the seller

has every right to receive payments on the unpaid balance of the
price from the buyer.
o Aside from the barring of the deficiency, other securities given
for payment of price are also barred from being recovered: The
vendor cannot proceed from any third party who may have
guaranteed the vendees performance of his obligation, for if the
guarantor should be compelled to pay the balance, the guarantor will
be entitled to recover what he has paid from the debtor-vendee, so
that ultimately, it will be the vendee who will be made to bear the
payment of the balance of the price. Moreover, other claims are
also barred from being recovered such as the interest on the
principal, attorneys fees, expenses for collection and the costs.
Perverse Buyer- Mortgager: If the buyer refuses to surrender the items
to the seller, he becomes a perverse buyer-mortgagor. When that
happens, the seller can recover expenses and attorney's fees.
______________________________________________________________
o

Art. 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. (1454A-a)
Reason for Rule on Leases of Personal Property with Option to Buy
o This may really be considered a sale of personal property in
installments. The purpose of Art. 1485 is to prevent an indirect
violation of Art. 1484.
Meaning of the Clause when the lessor has deprived the lessee of
the possession or enjoyment of the thing
o This means that for failure to pay, the lessor is apparently exercising
the right of an unpaid seller, and has taken possession of the property.
This is so even if the property had been given up in obedience to the
lessors extrajudicial demand, such surrender not really being
voluntary.
When Lease Construed as Sale
o Even if the word lease is employed, when a sale on installment is
evidently intended, it must be construed as a sale.
Art. 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. (n)
Non- Return of Installments Paid

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

As a general rule, it is required that a case of rescission or

cancellation of the sale requires mutual restitution, that is, all partial
payments of price or rents must be returned.
o However, by way of exception, it is valid to stipulate that there should
be no returning of the price that has been partially paid or of the rents
given, provided the stipulation is not unconscionable.
Example:
Tom bought a car from Jerry on installment. It was agreed that
installments already paid should not be returned even if the sale be
cancelled. This is a valid stipulation unless unconscionable. If there is no
stipulation, the installments should be returned minus reasonable rent.
______________________________________________________________
o

SALE OF REAL PROPERTY IN INSTALLMENT (MACEDA LAW)

REPUBLIC ACT No. 6552

AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL
ESTATE ON INSTALLMENT PAYMENTS. (Rep. Act No. 6552)
Section 1. This Act shall be known as the "Realty Installment Buyer Act."
Section 2. It is hereby declared a public policy to protect buyers of real estate on
installment payments against onerous and oppressive conditions.
Section 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.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.lawphi1
Section 4. In case where less than two years of installments were paid, the seller shall
give the buyer a grace period of not less than sixty days from the date the installment
became due.
If the buyer fails to pay the installments due at the expiration of the 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.
Section 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.
Section 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.
Section 7. Any stipulation in any contract hereafter entered into contrary to the
provisions of Sections 3, 4, 5 and 6, shall be null and void.
Section 8. If any provision of this Act is held invalid or unconstitutional, no other
provision shall be affected thereby.
Section 9. This Act shall take effect upon its approval.
Approved: August 26, 1972.

MACEDA LAW governs the sale or financing of real estate on installment

payment

SECTION 3 is comprehensive enough to include both contracts of sale

and contracts to sell, provided that the terms of the payment of the price
require at least two installments.

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

PURPOSE OF MACEDA LAW: It is an expression of public policy to

protect buyers of real estate on installments against onerous and
oppressive conditions.

DOES NOT APPLY TO:

o Sale covering industrial lots
o Sale covering commercial buildings (and commercial lots by
implication)
o Sales to tenants under agrarian reform laws
o Sales of lands payable in straight terms

REQUISITES
o Transactions or contracts involving the sale or financing of real estate
on installment payments, including residential condominium
apartments; and
o Buyer defaults in payment of succeeding installments
While under Sec. 3, down payment is included in computing the
total number of installment payment made, the proper divisor is
the monthly installment on the down payment.

Maceda Law cannot be availed of by the DEVELOPER: Maceda law has

no application t protect the developer or one who succeeds the developer.

Rights of the Buyer

O

IF BUYER HAS PAID AT LEAST 2 YEARS OF INSTALLMENTS

1. The buyer must 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
2. Actual cancellation can only 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 the buyer

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 after 5 years of installments. There shall be an

additional 5% every year but not to exceed 90% of the total
payments made.
3. 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.
4. 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.
O

IF BUYER HAS PAID AT LESS THAN TWO YEARS OF

INSTALLMENTS
1. The seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due. If the buyer
fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after 30 days from
receipt by the buyer of the notice of cancellation or the demand
for rescission by a notarial act.
2. Actual cancellation can only 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 the buyer
3. 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

Down payments, deposits or options on the contract shall be

included in the computation of the total number of installment
payments made.

______________________________________________________________
SPECIAL REMEDIES OF UNPAID SELLER

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

DEFINTION OF UNPAID SELLER

Art. 1525. The seller of goods is deemed to be an unpaid seller within the
meaning of this Title:
(1) When the whole of the price has not been paid or tendered;
(2) When a bill of exchange or other negotiable instrument has been
received as conditional payment, and the condition on which it was
received has been broken by reason of the dishonor of the instrument,
the insolvency of the buyer, or otherwise.

In Articles 1525 to 1535 the term "seller" includes an agent of the seller
to whom the bill of lading has been indorsed, or a consignor or agent
who has himself paid, or is directly responsible for the price, or any
other person who is in the position of a seller. (n)
When seller is Deemed an Unpaid Seller
o If only part of the price has been paid or tendered the seller is still an
unpaid seller. Notice that the law uses the whole of the price
o Mere delivery of a NI does not extinguish the obligation of the buyer to
pay because it may be dishonoured (Art. 1249 par. 2). Therefore, the
seller is still an unpaid seller, if say, a dishonor indeed is made.
RIGHTS OF UNPAID SELLER2
Art. 15263. Subject to the provisions of this Title, notwithstanding that
the ownership in the goods may have passed to the buyer, the unpaid
seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in
possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods
in transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the
unpaid seller has, in addition to his other remedies a right of withholding
delivery similar to and coextensive with his rights of lien and stoppage
in transitu where the ownership has passed to the buyer. (n)
POSSESSORY LIEN (in the nature of a pledge)4
2

Possessory lien is lost after the seller loses possession but his lien
(no longer possessory) as an unpaid seller remains; hence, he is still
a preferred creditor with respect to the price of the specific goods
sold. His preference can only be defeated by the governments claim
to the specific tax on the goods themselves (Art. 2247 & 2241 par.3)
Although the sellers possessory lien is in the nature of a legal pledge
and although the rule in legal pledges is that in case of a public
auction of the thing pledged, there can be no recovery of the
deficiency, notwithstanding a contrary stipulation (Art. 2115 & 2121),
still under Art. 1533, should he properly makes a resale of the
property, he may still recover from the buyer damages for any loss
occasioned by the breach of contract of sale

Art. 1527. Subject to the provisions of this Title, the unpaid seller of
goods who is in possession of them is entitled to retain possession of
them until payment or tender of the price in the following cases, namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit, but the term of credit has
expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer. (n)
When Seller has Possessory Lien
o This article refers to the cases when the unpaid seller has a
possessory lien
Example: Jerome sold RB a specific car. No term of credit
was given. Jerome can possess a possessory lien until he
is paid.
Q: Jerome sold RB a specific diamond ring to be paid in 6
months later. By mutual agreement, RB is made already
the owner, but Jerome will act as the depositary of the ring
in the meantime. If the term expires and RB has not yet
paid, may Jerome still continue possessing the ring even if
he is no longer the owner?
A: Yes, for he has NOT been paid. His no longer being the
owner is not important, for the law says: The seller may
exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer
(Art. 1627, last par)5

Must be observed in the following order

Art. 1526 does not refer to the right of the seller to ask for the
purchase price, such right being granted under other articles.
4

This is the vendors lien on the PRICE.

This possessory lien, however remains only as long as the

property is still in the vendor.

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

Art. 1535. Subject to the provisions of this Title, the unpaid seller's right
of lien or stoppage in transitu is not affected by any sale, or other
disposition of the goods which the buyer may have made, unless the
seller has assented thereto.
o When Negotiable Document of Title Has Been Issued
Art. 1535. Subject to the provisions of this Title, the unpaid seller's right
of lien or stoppage in transitu is not affected by any sale, or other
disposition of the goods which the buyer may have made, unless the
seller has assented thereto.
If, however, a negotiable document of title has been issued for goods, no
seller's lien or right of stoppage in transitu shall defeat the right of any
purchaser for value in good faith to whom such document has been
negotiated, whether such negotiation be prior or subsequent to the
notification to the carrier, or other bailee who issued such document, of
the seller's claim to a lien or right of stoppage in transitu. (n)
o Effect if Buyer Has Already Sold the Goods
Generally, the unpaid sellers right to LIEN or STOPPAGE IN
TRANSITU remains even if the buyer has sold or otherwise
disposed of the goods
Exceptions
1. When the seller has given his consent thereto
2. When the purchaser or the buyer is a purchaser for value in
good faith of a negotiable document of title.
o When Part Delivery Effected
Art. 1528. Where an unpaid seller has made part delivery of the goods,
he may exercise his right of lien on the remainder, unless such part
delivery has been made under such circumstances as to show an intent
to waive the lien or right of retention. (n)
Possessory Lien After Partial Delivery
1. This refers to a possessory lien even after a partial delivery.
2. The lien however may be waived expressly or impliedly.
3. The partial delivery may have been made under such
circumstances as to show an intent to waive:
o The lien
o Or right of retention
o Instances When Possessory Lien is Lost
Art. 1529. The unpaid seller of goods loses his lien thereon:
(1) When he delivers the goods to a carrier or other bailee for the
purpose of transmission to the buyer without reserving the ownership in
the goods or the right to the possession thereof;

(2) When the buyer or his agent lawfully obtains possession of the
goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his lien
by reason only that he has obtained judgment or decree for the price of
the goods. (n)

This refers to the instances when the lien is lost

The lien lost is only the possessory lien and not the vendors lien
on the price.
The unpaid seller losses his possessory lien, when he parts with
physical possession of the goods, as when he delivers the goods
to the carrier. In that case, he still has the remedy of stoppage in
transitu, but only if the buyer has in the meantime become
insolvent.

Q: Mon delivered the goods to the carrier for transmission to the buyer. She,
however, reserved his right to the ownership in the goods. Does she lose her
possessory lien?
A: No, in view of the reservation.6
Q: An unpaid seller still in possession of the goods sold brought an action to
get the purchase price. Does he lose his lien?
A: No, for the bringing of the action is not one of the ways of losing the
necessary lien. As a matter of fact, even if he had already obtained a money
judgment in his favor, the possessory lien still remains with him.
Q: An unpaid seller, who possessed the goods thru a warehouseman,
delivered to the buyer a negotiable warehouse receipt. Does the unpaid seller
still have a possessory lien?
A: No more, for the negotiable warehouse receipt automatically transferred
both title and right of possession to the goods in the buyer (see Art. 1629 par
2 which states in part: when the buyer or his agent lawfully obtains
possession of the goods)
Q: An unpaid seller actually delivered the goods to the buyer. The buyer
however decided to cancel the sale, so he returned the goods to the seller. Is

The same answer should be given if the seller has reserved the
right to the possession of the goods even after he had delivered
the same to the carrier (Art, 1529 par. 1)

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

the possessory lien relieved?

receive them back.

A: Yes, because the unpaid seller is once more in possession of the goods.

Goods are no longer in transit within the meaning of the preceding

article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods
before their arrival at the appointed destination;
(2) If, after the arrival of the goods at the appointed destination, the
carrier or other bailee acknowledges to the buyer or his agent that he
holds the goods on his behalf and continues in possession of them as
bailee for the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by the buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods to
the buyer or his agent in that behalf.

RIGHT OF STOPPAGE IN TRANSITU (available if seller has parted

with the possession)

Art. 1530. Subject to the provisions of this Title, when the buyer of goods
is or becomes insolvent7, the unpaid seller who has parted with the
possession of the goods has the right of stopping them in transitu, that
is to say, he may resume possession of the goods at any time while they
are in transit, and he will then become entitled to the same rights in
regard to the goods as he would have had if he had never parted with
the possession. (n)
o This refers to the right of stoppage in transit, available to the unpaid
seller-- If he has parted with the possession of the goods
AND if the buyer is or becomes insolvent
o Meaning of Insolvency in the Article
The insolvency referred to need not be judicially declared. It is
enough that the obligation exceeds a mans assets.
o Who May Exercise the Right of Stoppage in Transitu
Any person who as between himself and a purchaser, may be
regarded as an unpaid vendor.
o When Negotiable Document of Title Issued (see discussion on
1535)
o When Buyer is Deemed Insolvent a buyer is deemed insolvent
who either has ceased to pay his debts in the ordinary course of
business or cannot pay his debts as they become due, whether
insolvency proceedings have been commenced or not.
o When Goods are Deemed In Transit and No Longer in Transit
Art. 1531. Goods are in transit within the meaning of the preceding
article:
(1) From the time when they are delivered to a carrier by land, water, or
air, or other bailee for the purpose of transmission to the buyer, until the
buyer, or his agent in that behalf, takes delivery of them from such
carrier or other bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them, even if the seller has refused to

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

chartered by the buyer, it is a question depending on the circumstances
of the particular case, whether they are in the possession of the carrier
as such or as agent of the buyer.
When Goods are in Transit or Not
1. This article refers to instances when the goods are still
considered in transit and when no longer in transit
2. The right to get back the goods exists only when the goods
are still in transit
3. Taking of the property in transit by an unauthorized agent of
the buyer does not extinguish the right of stoppage in transitu.
Effect of Refusal to Receive
1. If upon arrival the buyer unjustifiably refuses to receive the
goods, the good are still in transitu and therefore, the seller
may still exercise the right of stoppage
o When Part Delivery Already Made
Art. 1535 (last par). If part delivery of the goods has been made to the
buyer, or his agent in that behalf, the remainder of the goods may be
stopped in transitu, unless such part delivery has been under such
circumstances as to show an agreement with the buyer to give up
possession of the whole of the goods. (n)
o How Right is Exercised
Art. 1532. The unpaid seller may exercise his right of stoppage in
transitu either by obtaining actual possession of the goods or by giving

The words is or have been inserted to make it clear that the

sellers right exists even though the buyer was already insolvent at
the time of sale.

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

notice of his claim to the carrier or other bailee in whose possession the
goods are. Such notice may be given either to the person in actual
possession of the goods or to his principal. In the latter case the notice,
to be effectual, must be given at such time and under such
circumstances that the principal, by the exercise of reasonable
diligence, may prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the seller to the carrier,
or other bailee in possession of the goods, he must redeliver the goods
to, or according to the directions of, the seller. The expenses of such
delivery must be borne by the seller. If, however, a negotiable document
of title representing the goods has been issued by the carrier or other
bailee, he shall not obliged to deliver or justified in delivering the goods
to the seller unless such document is first surrendered for cancellation.
(n)
How the Right if Stoppage in Transitu May be Exercised8
1. Obtaining actual possession
2. Giving notice of claim
To Whom Notice is Given
1. To the person in actual possession of the goods
2. Or to his principal
Effects of the Exercise of the Right
1. After the exercise of the right of stoppage in transitu, the
consequential effects are:
o The goods are no longer in transit
o The contract of carriage ends; instead, the carrier now
becomes a mere bailee and will be liable as such
o The carrier should not deliver anymore to the buyer or the
latters agent; otherwise, he will clearly be liable for
damages
o The carrier must redeliver to, or according to the direction
of, the seller.
o When Goods Covered by Negotiable Document of Title (see Art.
1532 last par)

expressly reserves the right of resale in case the buyer should make
default, or where the buyer has been in default in the payment of the
price for an unreasonable time, an unpaid seller having a right of lien or
having stopped the goods in transitu may resell the goods. He shall not
thereafter be liable to the original buyer upon the contract of sale or for
any profit made by such resale, but may recover from the buyer
damages for any loss occasioned by the breach of the contract of sale.
Where a resale is made, as authorized in this article, the buyer acquires
a good title as against the original buyer.
It is not essential to the validity of resale that notice of an intention to
resell the goods be given by the seller to the original buyer. But where
the right to resell is not based on the perishable nature of the goods or
upon an express provision of the contract of sale, the giving or failure to
give such notice shall be relevant in any issue involving the question
whether the buyer had been in default for an unreasonable time before
the resale was made.
It is not essential to the validity of a resale that notice of the time and
place of such resale should be given by the seller to the original buyer.
The seller is bound to exercise reasonable care and judgment in making
a resale, and subject to this requirement may make a resale either by
public or private sale. He cannot, however, directly or indirectly buy the
goods. (n)
o

SPECIAL RIGHT OF RESALE 9

Art. 1533. Where the goods are of perishable nature, or where the seller
8

There must be intent to repossess the goods.

Special because the rights of resale and to rescind the sale are
accorded only to the UNPAID SELLER (different from rescission of
reciprocal contracts under Art. 1191)

10

Right of Resale Exists When (there are/is)

Perishable goods
Express stipulation
Unreasonable default
Right, Not Duty, to Resell
This article confers on the seller the right to resell (to enforce his
lien after title has passed) but does not impose upon him the duty
to resell.10
Meaning of Perishable
Goods are perishable of they are of a nature that they deteriorate
rapidly.
Deficiency or Excess in the Price
Note that the deficiency in the price may be obtained as
damages. This happens when the resale price is lower than the
original selling price. Indeed, the resale is similar to a foreclosure

Art. 1533 DOES NOT APPLY where title to goods has not passed.

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

o
o

o
o

of a lien held to secure the payment of the purchase price. On the

other hand, any excess in the price goes to the seller.
Effects of Having Exercised Right of Resale (see Art. 1533 par. 1)
Transfer of Ownership
Where a resale is made, as authorized in this article, the
buyer acquires a good title as against the original buyer
special feature of the right of the unpaid seller to resell: not only is
he able to destroy or obliterate the ownership over the goods in
the original buyer, he is also able to transfer ownership to the
subsequent buyer, even if at the time of tradition, he no longer
had ownership over the goods. Ordinarily, the destruction or
taking away of ownership in one person and placing it in another
person in such manner can only be done through court action. But
in the case of an unpaid seller, he can effect these, even without
judicial action.
Notice to Defaulting Buyer (see Art. 1533 par. 3)
Standard of Care and Disqualification in Resale (see Art. 1533,
last par)

SPECIAL RIGHT TO RESCIND THE SALE

Art. 1534. An unpaid seller having the right of lien or having stopped the
goods in transitu, may rescind the transfer of title and resume the
ownership in the goods, where he expressly reserved the right to do so
in case the buyer should make default, or where the buyer has been in
default in the payment of the price for an unreasonable time. The seller
shall not thereafter be liable to the buyer upon the contract of sale, but
may recover from the buyer damages for any loss occasioned by the
breach of the contract.
The transfer of title shall not be held to have been rescinded by an
unpaid seller until he has manifested by notice to the buyer or by some
other overt act an intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving or failure to
give notice to the buyer of the intention to rescind shall be relevant in
any issue involving the question whether the buyer had been in default
for an unreasonable time before the right of rescission was asserted. (n)
o Right to Rescind the Transfer of Title
This article refers to the right to rescind the transfer of title and to
resume the ownership in the goods
This applies in case there has been
express stipulation or reservation by the seller in case of
default by the buyer;

unreasonable default by the buyer in the payment for an

unreasonable time
Note that damages may be recovered for the breach of contract
as effect
Q: What should be done in order to rescind the transfer of title?

A: There must be notice to the buyer or there must be an overt act

showing an intention to rescind.
Effect of Replevin Suit
When the seller brings a replevin suit (recovery of personal
property), there is an implied rescission of the sale of the goods
sought to be recovered. If ownership is claimed over the property,
and it is subsequently offered to a third person, these facts can be
presented to indicate an intention to rescind.
______________________________________________
o

Art. 1536. The vendor is not bound to deliver the thing sold in case the
vendee should lose the right to make use of the terms as provided in
Article 1198. (1467a)
o When Seller is not Bound to Deliver Because Buyer Has Lost the
Benefit of the Term
Art. 1198. The debtor shall lose every right to make use of the
period
When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
When he does not furnish to the creditor the guaranties or
securities which he has promised;
When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory;

When the debtor violates any undertaking, in consideration of

which the creditor agreed to the period;
When the debtor attempts to abscond.
In these cases enumerated, the vendor is not bound o deliver.
Q: Mel purchased good from Joey. Mel promised to give certain
securities, as a result of which, Mel was given one year within which to
pay. Mel failed to give the securities. Can Joey be compelled to
deliver?
A: No, of course, if Joey so desires he may voluntarily deliver.

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Sales (Art. 1525-1544, Recto Law, Maceda Law) by Ricky Cabatu

Art. 1537. The vendor is bound to deliver the thing sold and its
accessions and accessories in the condition in which they were upon
the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the
contract was perfected. (1468a)
o Accessions and accessories
Example of Accession: Fruits
Example of Accessories: In the sale of a car, the jack is
considered an accessory.
o Duty to Preserve
This article implicitly reiterates the duty of the seller to
PRESERVE. Naturally, a fortuitous event excuses the seller. But
since a fortuitous event is never presumed, the loss of the
property because of such event is naturally to be proved by the
seller.
Right to the Fruits
o Although under the 2nd paragraph fruits shall pertain to the buyer from
the date of perfection, it is evident that a contrary stipulation may be
agreed upon, or a later date may be set, The term fruits here includes
natural, industrial or civil fruits.
Art. 1538. In case of loss, deterioration or improvement of the thing
before its delivery, the rules in Article 1189 shall be observed, the vendor
being considered the debtor. (n)
Effect of Loss, Deterioration or Improvement Before Delivery
o This article reiterates the rule that from time of perfection delivery, risk
is borne by the buyer.
Article 1189
o When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules
shall be observed in case of the improvement, loss or deterioration of
the thing during the pendency of the condition:
1. If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
2. If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost
when it perishes, or goes out of commerce, or disappears in such
a way that its existence is unknown or it cannot be recovered;
3. When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;

4. If it deteriorates through the fault of the debtor, the creditor may

choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
5. If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor;
6. If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary.
Art. 1539. The obligation to deliver the thing sold includes that of placing
in the control of the vendee all that is mentioned in the contract, in
conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at
the rate of a certain price for a unit of measure or number, the vendor
shall be obliged to deliver to the vendee, if the latter should demand it,
all that may have been stated in the contract; but, should this be not
possible, the vendee may choose between a proportional reduction of
the price and the rescission of the contract, provided that, in the latter
case, the lack in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of
the immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the
vendee, when the inferior value of the thing sold exceeds one-tenth of
the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had
he known of its smaller area of inferior quality, he may rescind the sale.
(1469a)
Sale of Real Estate By Unit
o This refers to the sale of real estate by the unit.
Examples:
(1) If Laurel buys from hardy a piece of land supposed to contain 1,000
sq. m. at the rate of 10K per sq. m., but the land has only 800 sq. m., the
additional 200 must be given to Laurel should Laurel demand them. If this
cannot be done, Laurel may pay only 8 million (for the 800 sq. m.) or
rescind the contract.
(2) Q: If in the above example, there are only 950 sq. m., can Laurel ask
for rescission?
A: As a rule no, because the lack is only 50 sq. m. The lack must be at
least 1/10 of the area stated. However, if Laurel would have not bought
the land had he known of its smaller area, he may rescind the sale. 11

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Unit Price Contract

o If a contract is a unit price contract (as distinguished from a lump sum
contract) payment will be made only on the basis of contractual items
actually performed, in accordance with the given plans and
specifications.
o In such a unit price contract, the amount agreed upon is generally
merely an estimate and may be reduced or increased depending
upon the quantities performed multiplied by the unit prices previously
agreed upon. For a unit price formula to be applied, there must be a
stipulation to such effect. Incidentally, a contractor may not be
awarded a compensation for his services, arising from the price
adjustment due to inflation.

Art. 1540. If, in the case of the preceding article, there is a greater area or
number in the immovable than that stated in the contract, the vendee
may accept the area included in the contract and reject the rest. If he
accepts the whole area, he must pay for the same at the contract rate.
(1470a)
Rule when Actually Area or Number is Greater
Q: Tom buys from Jerry a piece of land supposed to contain 1,000 sq.
m. at the rate of 10K a sq. m. But the land really contains 1, 500 sq.
m. What can Tom do?
A: Tom may accept 1,000 sq. m. and reject the extra 500, in which
case he will pay only 10 million. However, Tom is also allowed to
accept all of the 1,500 sq. m. but he must pay 15 million. Tom is in no
case allowed to rescind the contract, for such remedy is not allowed
him under the article.
Art. 1541. The provisions of the two preceding articles shall apply to
judicial sales. (n)

The same rule shall be applied when two or more immovables as sold
for a single price; but if, besides mentioning the boundaries, which is
indispensable in every conveyance of real estate, its area or number
should be designated in the contract, the vendor shall be bound to
deliver all that is included within said boundaries, even when it exceeds
the area or number specified in the contract; and, should he not be able
to do so, he shall suffer a reduction in the price, in proportion to what is
lacking in the area or number, unless the contract is rescinded because
the vendee does not accede to the failure to deliver what has been
stipulated. (1471)
Sale for a Lump Sum ( A Cuerpo Cierto)
o Here the sale is made for a lump sum (a cuerpo cierto or por precio
alzado) not at the rate per unit.
(1) Q: Harry buys a piece of land from Ron at the lump sum of 10 million. In
the contract, the area is stated to be 1,000 sq. m. The boundaries are of
course mentioned in the contract. Now then it was discovered that the land
within the boundaries really contains 1, 500 sq. m. Is Ron bound to deliver
the extra 500 sq. m.?
A: Yes. Furthermore, the price should not be increased. This is so because
Ron should deliver all of which are included in the boundaries. If Ron does
not deliver the remaining 600, Harry has a right--1. Either to rescind the contract for the sellers failure to deliver what
has been stipulated or
2. To pay a reduced proportional price, namely 2/3 of the original price.
This is so because Harry gets only 2/3 of the land included within
the boundaries (1,000 sq. m. out of 1,500 sq. m.)
(2) Q: Lady Gaga buys a piece of land a cuerpo cierto (for a lump sum).
The contract states a certain number of square meters but the land included
in the boundaries happen to be LESS.
1. Is Lady Gaga entitled to Rescind? No.
2. Is Lady Gaga entitled to pay a reduced price? No.
The Civil Code presumes that the purchaser had in mind a determinate
piece of land and that he ascertained its area and quality before the
contract was perfected. If he did not so, or if having done so, he made
no objection and consented to the transaction, he can blame no one but
himself.

Art. 1542. In the sale of real estate, made for a lump sum and not at the
rate of a certain sum for a unit of measure or number, there shall be no
increase or decrease of the price, although there be a greater or less
area or number than that stated in the contract.

11

The 1/10 part referred to in the article applies to 1/10 of the area
stated in the contract, not to 1/10 of the true actual area. This is
evident because of the wording of the law--- area stated.

Delivery of All the Land Included in the Boundaries

o What is important is the delivery of all the land included in the
boundaries

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If this is done, there is compliance with the contract and the

greater or lesser area is immaterial. So apply par. 1 of Art. 1542.
If this is not done, there is really no faithful compliance with the
contract and so par. 2 of Art. 1542 should be applied.
Effect of Gross Mistake
o Regarding par. 1 of Art. 1542, although ordinarily there can be no
rescission or reduction or increase whether the area be greater or
lesser, still there are instances in which equitable relief may be
granted to the purchaser as where the deficiency is very great for
under such circumstances, GROSS MISTAKE may be inferred.
Effect if Buyer Took the Risk as to Quantity
Garcia vs Velasco
The SC was satisfied that although the shortage amount to
particularly of the total area, the purchaser clearly intended to take
risk of quantity, and that the area has been mention in the contract
merely for purpose of description. From the circumstances that the
defendant, before her purchase of the fishpond, had been in
possession and control thereof for two years as a lessee, she can
rightly be presumed to have acquired a good estimate of its value and
area, and her subsequent purchase thereof must have been premised
on the knowledge of such value and area. Accordingly, she cannot
now be heard to claim an equitable re-auction in the purchase price
on the pre-text that the property is much less that she thought it was.
Meaning of More or Less
o The phrase more or less or others of like import added to a
statement of the quantity, can only be considered as covering
inconsiderable or small differences one way or the other. The use
of such phrases in designating the quantity covers only a reasonable
excess or deficiency.

Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe
in six months, counted from the day of delivery. (1472a)

___________________________________________________
DOUBLE SALE
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.

Should there be no inscription, the ownership shall pertain to the person

who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is
good faith. (1473)

Requisites for Double Sale (VOSC)

1. Two or more transactions must constitute valid sales;
In order to constitute double sale, both sales must be valid.
Double sales rules are applications to consummation issues;
hence, when the underlying contract of sale is void,
consummation, particularly tradition, cannot produce its legal
consequences.
2. They must pertain exactly to the same object or subject matter
3. They must be bought from the same or immediate seller; and
4. Two or more buyers who are at odds over the rightful ownership of the
subject matter must represent conflicting interests
Rules of Preference in Case of Double Sale
In all these rules, there must be GF; otherwise, the order of preference
does not apply.
A purchaser in GF is one who buys the property of another without notice
that some other person has a right to, or interest in such property, and
pays a full and fair price for the same, at the time of such purchase, or
before he has notice of the claim or interest of some other person in the
property.
A person for example who buys a land which he knows has already been
promised to another is a purchase in GF.
GF, however, is presumed. In order that a purchaser of land with a
Torrens Title may be considered purchaser in GF, it is enough that he
examines the latest certificate of title which, in this case, is that issued in
the name of the immediate transferor.
The purchaser is not bound by the original certificate of title but only by
the certificate of title of the person from whom he has purchased the
property.
However, where 2 certificates of title are issued to different persons
covering the same land in whole or in part, the earlier in date must prevail
as between original parties, and in case of successive registrations, where
more than one certificate is issued over the land, the person holding under

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the prior certificate is entitled to the land as against the person who relies
on the 2nd certificate.
The purchaser from the owner of the later certificate and his successors
should resort to his vendor for redress rather than molest the holder of the
first certificate and his successors, who should be permitted to rest secure
in their title.
Personal Property possessor in GF
Real Property
Registrant in GF
Registration here requires actual recording: hence, if the property was never
really registered as when the registrar forgot to do so although he has been
handed the document, there is no registration.
o
o

The rule as to registration covers all kinds of immovables, including land, and
makes no distinction as to whether the immovable is registered under the
Land Registration Law (with therefore a Torrens Title) or not so registered.
But insofar as said registered lands are concerned, Art. 1544 is in perfect
accord with the Land Registration Act, Sec. 50 of which provides that no
deed, mortgage, lease or other voluntary instrument except a will, purporting
to convey or to affect registered land shall take effect as conveyance or bind
the land until the registration of such deed or instrument.
Thus as to lands, covered by a Torrens Certificate of Title , a deed of sale is
considered registered from the moment it is entered or recorded in the entry or
day book of the Register of Deeds.
If the land is registered under the Land Registration Act (and has therefore a
Torrens Title), and it is sold but the subsequent sale is registered not under the
Land Registration Act but under Act 3344, as amended, such sale is not
considered REGISTERED, as the term is used under Art. 1544.
A mere preventive precautionary notice (anotacion preventiva) is not
equivalent to registration, unless within 30 days thereafter there is made an
actual recording. Such a preventive notice is good only against subsequent
(not prior) transferees, and even here for only 30 days. The registration of a
forged deed of sale cannot of course grant the preference adverted to in this
Article inasmuch as among other things, there was no GOOD FAITH.

Possessor in GF
Possession here is either ACTUAL or CONSTRUCTIVE
since the law makes no distinction.

Person with the oldest title in GF

Title in this article means title because of the sale, and not
any other title or mode of acquiring property. Hence, as
between a buyer-possessor whose possession has ripened to
ownership because of prescription, and a registrant in GF, the
possessor-owner is naturally preferred.

Example of Rules as To Real Property

Q: Val sold land to Ver. Subsequently, Val sold the same land to Chris
who in good faith registered it in his name. Who should be considered
the owner?
A: Chris in view of the registration in GF.
Q: Val sold land to Ver who then went to the Registry of Property. Ver
gave the deed of sale for registration, was given a receipt therefore,
but unfortunately, the Registrar for one reason or another was not
able to actually record the deed. Subsequently, Val sold the same
land to Mary, a purchaser in GF. Mary had the land registered in her
name. Who is now the owner?
A: Mary, in view of the registration in GF. The sale in favor of Ver was
NEVER ACTUALLY REGISTERED. The SC held that where a piece
of real property is first sold to a person who only secures a receipt for
the document evidencing the sale form the office of the register of
deeds, and where the piece of property is later sold to another person
who records his documents in the Registry of Deeds as provided by
law, and secures a Torrens Title the property belongs to the latter (Po
Sun Tan vs Price)
Q: Val sold a parcel of land with a Torrens Title to Ian on Jan. 5. A
week later, Val sold the same land to Darlene. Neither sale was
registered. As soon as Ian learned of the sale in favor of Darlene, Ian
registered an adverse claim stating that he was making the claim
because the second sale was in fraud of his rights as first buyer.
Later, Darlene registered the deed of sale that had been made in her
favor. Who is now the owner--- Ian or Darlene?
A: Darlene is clearly the owner, although she was the second
buyer. This is so, not because of the registration of the sale itself but
because of the AUTOMATIC registration in her favor caused by Ians
knowledge of the first sale (actual knowledge being equivalent to
registration). The purpose of registration is to notify. This notification

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was done because of Ians knowledge. It is wrong to assert that Ian

was only trying tom protect his right for there was no more right to be
protected. Ian should have registered the sale BEFORE knowledge
came to him. It is now too late. It is clear from this that with respect to
the principle actual knowledge is equivalent to registration of the
sale about which knowledge has been obtained--- the knowledge
may be that of either the FIRST or the SECOND buyer.
Q: Mama orally appointed Papa as his agent to sell a parcel of land.
On Sept. 30, 2004, Papa sold the land to Baby who forthwith took
possession thereof. It turned out, however, that on Sept. 25, 204,
Mama without informing Papa, had already sold the same land to
Kuya who up to now has not yet taken possession thereof. Neither
Baby nor Kuya has registered his purchase. Whose contract should
prevail?
A: The contract of Mama with Kuya will prevail, for he has title while
Baby has no title. It is true that Baby first took possession, but it
should be noted that the sale to Baby was null and void, inasmuch as
Papas authority tom sell the land was not in writing as stated in Art.
1874.

Applicability and Non-applicability of Art. 1544

Applicability
Non-applicability
a) To double donation
a) If the deed first registered is found
b) To sales made by a
to be a FORGERY
principal and his agent
b) To
a
subsequent
judicial
of the same property
attachments or executions which
should not prevail over prior
unregistered
sales
where
possession has already been
conveyed by the execution of a
public instrument
c) Nor to instances where the double
sale was not made by the same
person or his authorized agent
d) Nor to one where one sale was an
absolute one but the other was a
pacto de retro transaction where
the period to redeem has not yet
expired
e) Nor to one where one of the sales
was one subject to a suspensive
condition which condition was not

complied with
f) To a property first donated, then
sold (CA case)
g) The land is not registered under
the Torrens system
h) The first sale occurs when land is
not yet registered and the second
sale is done when the land is
already registeredthe principle
of prior tempore, potior jure (he
who is first in time is preferred
in right) should apply
Reason for the Rule on Preference
o Art. 1544 is an exception to the general rule (which is no one can
sell what he does not own). It is an exception by reason of public
convenience; in another sense, it really reiterates the general rule in
that insofar as innocent third persons are concerned, the registered
owner (in case of real property) is still the owner, with power of
disposition.
Concepts under Double Sale
o Lis Pendens- A buyer cannot be considered an IPFV when he
ignored the notice of lis pendens on the title when he bought the lot.
o First buyer is always in GF: knowledge gained by the first buyer of
the second sale cannot defeat the first buyers rights except only as
provided by the Civil Code and that is where the second buyer first
registers in GF the second sale ahead of the first.

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