Article 1484 of the Civil Code: Installment sale of movables (Recto Law)
Status: In force
What does Article 1484 say?
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.
What does it mean in plain language?
Article 1484 of the Civil Code, known as the Recto Law, protects people who buy movable things (personal property) on installments. If the buyer fails to pay, the seller may choose one of three remedies: collect the unpaid installments, cancel the sale, or foreclose the chattel mortgage on the thing sold. If the seller chooses to foreclose, it can no longer sue the buyer for the unpaid balance. The remedies are alternative: choosing one bars the others.
How does it work in real life?
Joy's refrigerator
Joy bought a refrigerator from an appliance store on installments, with a chattel mortgage on it. She missed three installments, and the store foreclosed on the refrigerator. Under Article 1484(3), the store has no further action against Joy for the unpaid balance.
The store chooses to collect
Instead of foreclosing, the store sues Joy for the unpaid installments (exact fulfillment). Following Elisco, having chosen this remedy, it cannot also cancel the sale or foreclose for the same default.
Buying with a bank loan
Rey borrowed from a bank to buy a car from a dealer and gave the bank a chattel mortgage. Following Palces, Article 1484 does not govern the bank's loan, because the bank did not sell him the car.
What does this mean in practice?
- Not paying a debt is not a crime by itself: see can you go to jail for unpaid debt?
- Interest on loans must be agreed in writing (Article 1956). See also is 5% monthly interest legal?
- For an overview of debts and collection, see debt and collection.
- For free or low-cost legal help, see where to find legal help.
What does Article 1484 say?
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.
Some terms:
- Vendor is the seller; vendee or purchaser is the buyer.
- Personal property means movable things, such as appliances, motorcycles, cars and equipment.
- Chattel mortgage is a security over a movable thing: the thing secures the payment of the price.
- Foreclose means to enforce that security, usually by selling the thing to pay the debt.
What are the three remedies?
- Exact fulfillment. The seller sues to collect what is due. One missed installment is enough.
- Cancel the sale. Only if the unpaid amount covers two or more installments.
- Foreclose the chattel mortgage. Only if a chattel mortgage on the thing sold exists and two or more installments are unpaid. After foreclosure, the seller "shall have no further action" for the unpaid balance, and a contract clause saying otherwise is void.
In Elisco Tool Manufacturing v. Court of Appeals (1999), the Court said these remedies are alternative, not cumulative. The exercise of one bars the exercise of the others.
Does it cover leases with option to buy?
Yes, when the lessor takes the thing back:
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.
In PCI Leasing and Finance v. Giraffe-X Creative Imaging (2007), a so-called financial lease of equipment was in reality a lease with an option to purchase. By recovering the equipment through replevin (a court action to recover possession), the lessor waived its right to sue for the unpaid rentals. The Court noted the long practice of calling an installment sale a "lease" to keep ownership from passing to the buyer until the price is fully paid. In Elisco (1999), filing a replevin case to recover the property was enough to show that the lessor had deprived the lessee of possession.
What about the installments already paid?
In the cases referred to in the two preceding articles, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances.
So a clause letting the seller keep the installments paid is valid, unless it is unconscionable (grossly unfair) in the circumstances.
Does it apply to a bank loan used to buy a car?
Not when the bank is only the lender. In Equitable Savings Bank v. Palces (2016), the buyer bought a vehicle from a third party and borrowed the price from the bank, giving a chattel mortgage. The Court said there was no seller-buyer relationship between the bank and the borrower: the contract was a loan with a chattel mortgage, not an installment sale. Article 1484 did not apply. The Court ordered the bank to foreclose under the Chattel Mortgage Law and to return any excess to the borrower.
Section 66 of Republic Act No. 11057 (Personal Property Security Act, 2018) later listed Sections 1 to 16 of the Chattel Mortgage Law (Act No. 1508) among the provisions it repeals, amends or modifies, and the Act applies to transactions that secure an obligation with movable collateral. Palces was decided under the older law. How foreclosure under Article 1484(3) works under the new Act is not covered on this page.
Where does the name come from?
The rules now in Articles 1484 and 1485 were first enacted by Act No. 4122 in 1933, which added them to the old Civil Code. The Supreme Court calls Articles 1484 to 1486 the "Recto Law", for example in PCI Leasing (2007) and in Lara's Gifts v. Midtown.
Frequently asked questions
What is the Recto Law?
It is the name the Supreme Court uses for Articles 1484 to 1486 of the Civil Code, the rules on sales of personal property payable in installments. The rules of Articles 1484 and 1485 first came from Act No. 4122 of 1933.
What can the seller do if the buyer stops paying the installments?
Article 1484 gives three remedies: exact fulfillment (collect what is due); cancel the sale, if the unpaid amount covers two or more installments; or foreclose the chattel mortgage on the thing sold, if there is one and two or more installments are unpaid.
If the seller repossesses and forecloses, can it still collect the balance?
No. Under Article 1484(3), once the seller forecloses the chattel mortgage on the thing sold, it shall have no further action against the buyer to recover any unpaid balance of the price, and any agreement to the contrary is void.
Can the seller use more than one remedy?
No. In Elisco Tool Manufacturing v. Court of Appeals (1999), the Court said the remedies in Article 1484 are alternative, not cumulative: the exercise of one bars the exercise of the others.
Does the Recto Law apply to a car bought with a bank loan?
Not when the bank did not sell the car. In Equitable Savings Bank v. Palces (2016), the buyer bought the car from a third party and only borrowed from the bank, so the Court held that Article 1484 did not apply to the bank's loan.
Does it cover a lease with option to buy?
Yes. Article 1485 applies the same rule to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the thing.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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