REMEDIES OF AN UNPAID SELLER

What are the remedies of an Unpaid Seller?

I. Ordinary

1. Action for Price Exercised when:

a. ownership has passed to buyer;

b. price is payable on a day certain

c. goods cannot readily be resold for reasonable price and Art. 1596 is inapplicable

2. Action for Damages – In case of wrongful neglect or refusal by the buyer to accept or pay for
the thing sold

II. Special 1. Possessory Lien – Seller not bound to deliver if buyer has not paid him the price. It
is exercisable only in following circumstances:

a. goods sold without stipulation as to credit

b. goods sold on credit but term of credit has expired

c. buyer becomes insolvent Note: When part of goods delivered, may still exercise right on
goods undelivered

2. Stoppage in Transitu

Requisites:

a. Insolvent buyer

b. Seller must Surrender the negotiable document of title, if any

c. Seller must bear the Expenses of delivery of the goods after the exercise of the right.

d. Seller must either actually take possession of the goods sold or give Notice of his claim to
the carrier or other person in possession

e. Goods must be in Transit

f. Unpaid seller
3. Special Right to Resell the Goods Exercised when:

a. Goods are perishable,

b. Stipulated the right of resale in case of default, or

c. Buyer in default for unreasonable time

4. Special Right to Rescind Requisites:

a. Expressly stipulated OR buyer is in default for unreasonable time

b. Notice needed to be given by seller to buyer

Note: Ownership of goods already with buyer but seller may still rescind; ownership is destroyed
even without court intervention but in ordinary sale, need to go to court.

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OPTION MONEY
What is the effect of failure to determine the price?

1. Where contract is executory – ineffective

2. Where the thing has been delivered to and appropriated by the buyer – the buyer must pay a
reasonable price therefore Note: The fixing of the price cannot be left to the discretion of one of
the parties. However, if the price fixed by one of the parties is accepted by the other, the sale is
perfected.

What is an option money?

The distinct consideration in case of an option contract. It does not form part of the purchase
price hence, it cannot be recovered if the buyer did not continue with the sale.

When is payment considered option money?

Payment is considered option money when it is given as a separate and distinct consideration
from the purchase price. Consideration in an option contract may be anything or undertaking of
value.
 EARNEST MONEY

What is an earnest money or “arras”?

This is the money given to the seller by the prospective buyer to show that the latter is truly
interested in buying the property, and its aim is to bind the bargain. (Pineda, p. 75)

What is the effect of giving an earnest money?

It forms part of the purchase price which may be deducted from the total price. It also serves as a
proof of the perfection of the contract of sale. The rule is no more than a disputable presumption
and prevails only in the absence of contrary or rebuttable evidence. (PNB v CA, 262 SCRA 464,
1996)

Note: Option money may become earnest money if the parties so agree.

When is payment considered an earnest money?

When the payment constitutes as part of the purchase price. Hence, in case when the sale did not
happen, it must be returned to the prospective buyer.

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INSTALLMENT SALES LAW

What is the Installment Sales Law?

Commonly known as the Recto Law. It is embodied in Art. 1484 of the NCC which provides for
the remedies of a seller in the contracts of sale of personal property by installments.

Note: Art. 1484 of the NCC incorporates the provisions of Act No. 4122 passed by the Philippine
Legislature on Dec. 9, 1939, known as the "Installment Sales Law" or the "Recto Law," which
then amended Art. 1454 of the Civil Code of 1889.

To what does the Recto Law apply?

This law covers contracts of sale of personal property by installments (Act No. 4122). It is also
applied to contracts purporting to be leases of personal property with option to buy, when the
lessor has deprived the lessee of the possession or enjoyment of the thing. (PCI Leasing and
Finance Inc. v. Giraffe-X Creative Imaging, Inc., G.R. No. 142618, July 12, 2007)
What are the alternative remedies in case of sale of personal property in
installments?

1. Specific Performance: Exact fulfillment should the buyer fail to pay

General Rule: If availed of, the unpaid seller cannot anymore choose other remedies;

Exception: if after choosing, it has become impossible, rescission may be pursued

2. Rescission: Cancel the sale if buyer fails to pay 2 or more installments Deemed chosen when:

a. Notice of rescission is sent

b. Takes possession of subject matter of sale

c. Files action for rescission

3. Foreclosure: Foreclose on chattel mortgage if buyer fails to pay 2 or more installments

General Rule: Actual foreclosure is necessary to bar recovery of balance - Extent of barring
effect: purchase price

Exception: Mortgagor refuses to deliver property to effect foreclosure; expenses incurred in

attorneys fees, etc.

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REALTY INSTALLMENT BUYER ACT

What is the Realty Installment Buyer Act?

Commonly known as the “Maceda Law.” It is embodied in R.A. 6552 which provides for certain
protection to particular buyers of real estate payable on installments. The law declares as "public
policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions.

Note: The purpose of the law is to protect buyers in installment against oppressive conditions.
What are the transactions/sale covered by the Maceda Law?

The law involves the sale of immovables on installment (Maceda Law, R.A. 6552).

1. Coverage: Residential Real Estate (Villanueva, p. 431)

2. Exclude:

a. Industrial lots

b. Commercial buildings (and commercial lots by implication)

c. Sale to tenants under agrarian laws

What are the rights granted to buyers?

1. Buyer paid at least 2 years installment

a. Pay without interest the balance within grace period of 1 month for every year of
installment payment. Grace period to be exercised once every 5 years.

b. When no payment – cancelled; buyer entitled to 50% of what he has paid + 5% for every
year but not exceeding 90% of payments made

Note: Cancellation to be effected 30 days from notice & upon payment of cash surrender value.

2. Buyer paid less than 2 years installment

a. Grace period is not less than 60 days from due date

b. Cancellation if failure to pay w/in 60 days grace

c. 30 days notice before final cancellation

Note: buyer can still pay w/in the 30 days period with interest.