My buyer stopped paying installments on personal property I sold. What remedies do I have?

Three remedies to choose from

Article 1484, known as the Recto Law, gives a seller of personal property on installments three clear options. First, you may Exact fulfillment of the obligation, should the vendee fail to pay — that is, sue to collect the unpaid price. Second, you may Cancel the sale, should the vendee's failure to pay cover two or more installments. Third, you may Foreclose the chattel mortgage on the thing sold, if one has been constituted, again once the buyer has missed two or more installments. Cancellation and foreclosure both require default on at least two installments; a single missed payment is not enough to trigger those two.

The remedies are alternative, not stackable

The three remedies are alternatives — you pick one, you do not get all three. The law offers any of the following remedies, and the settled understanding is that choosing one bars the others. If you sue to collect the full price, you are treating the sale as alive and cannot at the same time take back the thing. If you cancel, you undo the sale rather than collect on it. The point of the Recto Law is to stop a seller from both seizing the property and squeezing the buyer for the balance — you must commit to a single path.

The foreclosure trap: no deficiency

Foreclosure is the option to watch. The article says that if you foreclose the chattel mortgage, he shall have no further action against the purchaser to recover any unpaid balance of the price. So once you foreclose and the thing is sold, you keep the proceeds but you cannot chase the buyer for any shortfall, even if the sale price falls far below what is still owed. This is a deliberate limit: the seller who elects to take back and sell the security accepts whatever it fetches. Choosing foreclosure over a suit for the price can therefore be the more expensive route.

You cannot contract around it

The Recto Law does not let a seller draft his way out of these limits. The article ends flatly: Any agreement to the contrary shall be void. A clause purporting to let you foreclose and still collect the deficiency, for instance, has no effect. The protections are mandatory, written into the sale by law whatever the fine print says. So when your installment buyer stops paying, your real choices are the three the statute lists — chosen singly, and with the no-deficiency rule firmly attached to foreclosure.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

• PCI Leasing & Finance InC. vs. Giraffe-X Creative Imaging, Inc, G.R. No. 142618, July 12, 2007 — read the decision on LawPhil →
• Spouses Alfredo and Brigida Rosario vs. PCI Leasing and Finance Inc, G.R. No. 139233, November 11, 2005 — read the decision on LawPhil →
• Daniel L. Borbon II, et al. vs. Servicewide Specialists, et al, G.R. No. 106418, July 11, 1996 — read the decision on LawPhil →
• Equitable Savings Bank vs. Rosalinda C. Palces, G.R. No. 214752, March 9, 2016 — read the decision on LawPhil →

Related provisions

• Civil Code, Article 1484 — Recto Law (Installment Sale of Personalty)