REMEDIES FOR BREACH OF CONTRACT

A.
Remedies of the seller
1. Action for payment of the price (Art. 1595)
2. Action for damages for non-acceptance of
the goods (Art. 1596)
3. Action for rescission (Art. 1597)
B.
Remedies of the buyer
1. Action for specific performance (Art. 1598)
2. Action for rescission or damages for breach
of warranty (Art 1599)
A. REMEDIES OF THE SELLER FOR BREACH OF
CONTRACT
IN CASE OF MOVABLES
1. Ordinary Remedies
a. Movables in General Failure of the
vendee to appear to receive delivery
or, having appeared, failure to tender
the price at the same time, unless, a
longer period for its payment has been
stipulated
action to rescind the sale (Art.
1593)
b. Sale of Goods
action for the price (Art. 1595)
action for damages (Art. 1596)
2. Unpaid Seller
Types:
a. The seller of the goods who has not
been paid or to whom the price has not
been tendered
b. The seller of the goods, in case 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, insolvency of the buyer or
otherwise.
Remedies:
1. Possessory lien over the goods
2. Right of stoppage in transitu after he
has parted with the possession of the
goods and the buyer becomes insolvent
3. Special Right of resale
4. Special Right to rescind the sale
5. Action for the price
6. Action for damages
3. Article 1484 or Recto Law

Remedies of vendor in sale of personal

property by installments
Requisites:
1. Contract of sale

2. Personal property
3. Payable in installments
4. In the case of the second and third
remedies, that there has been a failure
to pay two or more installments
NOTE:
Apply likewise to contracts
purporting to be leases of personal
property with option to buy
Art. 1484 does not apply to a sale:
1. Payable on straight terms (partly in
cash and partly in one term)
2. Of Real property
Remedies:
1. Specific performance upon vendees
failure to pay
NOTE: Does not bar full recovery for
judgment secured may be executed on all
personal and real properties of the buyer
which are not exempt from execution
(Palma v. CA.)
2. Rescission of the sale if vendee shall
have failed to pay two or more
installments
NOTES:
Nature of the remedy which requires
mutual restitution bars further action
on the purchase price (Nonato vs. IAC.)
GENERAL RULE: cancellation of sale
requires mutual restitution, that is all
partial payments of price or rents must
be returned
EXCEPTIONS: 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 (Article 1486).
3. Foreclosure of the chattel mortgage on
the thing sold if vendee shall have
failed to pay two or more installments.
In this case, there shall be no further
action against the purchaser to recover
unpaid balance of the price.

NOTES:
Further recovery barred only from the
time of actual sale at public auction
conducted pursuant to foreclosure
(Macondray vs. Tan.)
Other chattels given as security cannot
be foreclosed if they are not subject of
the installment sale (Ridad vs. Filipinas
investment and Finance Corp. GR
39806, Jan. 28, 1983)
If the vendor assigns his right to a

financing company, the latter may be

regarded as a collecting agency of the
vendor and cannot therefore recover
any deficiency from the vendee (Zayas
vs. Luneta Motors Co.)
When the vendor 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
vendor-mortgagee is deemed to have
renounced any right thereto (Borbon II
vs.
Servicewide
Specialist,
Inc.
258SCRA658)
NOTE: However, Article 1484(3) does NOT bar
one to whom the vendor has assigned on with a
recourse basis his credit against the vendee
from recovering from the vendor the assigned
credit in full although the vendor may have no
right of recovery against the vendee for the
deficiency (Filipinas Invest. & Finance Corp.
vs. Vitug, Jr. 28SCRA658)
NOTE: Remedies are alternative and exclusive

IN CASE OF IMMOVABLES
1. Ordinary Remedies
a. In case of anticipatory breach
rescission (Article 1591)
b. Failure to pay the purchase price
rescission upon judicial or notarial
demand for rescission (Article
1592)
the vendee may pay, even after the
expiration of the period, as long as
no demand for rescission has been
made upon him
NOTE: Article 1592 does not apply to:
1) Sale on instalment of real estate
2) Contract to sell
3) Conditional sale
4) Cases covered by RA 6552: Realty
Installment buyer protection act
2. R.A. No. 6552 or Maceda Law

An Act to Provide Protection to

buyers of Real Estate on Installment
Payments

Law governing sale or financing

of real estate on installment payments
Requisites:
1. transactions or contracts involving the
sale OR financing of real estate on
installment
payments,
including

residential condominium apartments;

and
2. buyer
defaults
in
payment
of
succeeding installments.

Rights of the buyer:

A. If Buyer has paid at least two (2)
years of installments
1. The buyer must pay, without additional
interest, the unpaid installments due
within the total grace period earned by
him. There shall be one (1) month
grace period for every one (1) year of
installment payments made
NOTE: This right shall be exercised by
the buyer ONLY once in every 5 years of
the life of the contract AND its
extensions.
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 (Olympia
Housing vs. Panasiatic, 16 January
2003.)
NOTE: 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
five (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.
B. If Buyer has paid less than 2 years of
installments
1. The seller shall give the buyer a grace
period of NOT less than 60 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 of contract by a notarial act.
2. Same No. 3 and 4 paragraph A above

5. Seller must surrender the negotiable

document of title, if any, issued by the
carrier or bailee
6. Seller must bear the expenses of
delivery of the goods after the exercise
of the right

NOTE: Down payments, deposits or options on

the contract shall be included in the
computation of the total number of installment
payments made

GOODS ARE CONSIDERED IN TRANSITU:

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

Remedies of Unpaid Seller

I.
Possessory Lien
When may be exercised:
1. Where the goods have been sold
without any stipulation as to credit
2. When the goods have been sold on
credit, but the term of credit has
expired
3. Where the buyer becomes insolvent
When lost:
1. Delivery of the goods to a carrier or
bailee for the purpose of transmission
to the buyer without reserving
ownership or right of possession
2. When the buyer lawfully obtains
possession of the goods
3. By waiver of the lien
NOTE: Possessory lien is lost after the seller
loses possession but his lien as an unpaid seller
remains; hence he is still an unpaid creditor
with respect to the price of specific goods sold.
His preference can only be defeated by the
governments claim to the specific tax on the
goods themselves (Arts. 2247 and 2241).
NOTE: The bringing of an action to recover the
purchase price is not one of the ways of losing
the possessory lien. An unpaid seller does not
lose his lien by reason that he has obtained a
money judgement or decree for the price of
goods (Art. 1529, last paragraph).
II.
Stoppage of goods in transitu
Requisites:
1. Seller must be unpaid
2. Buyer must be insolvent
3. Goods must be in transit
4. Seller must either:
a. actually take possession of the
goods sold OR
b. give notice of his claim to the
carrier
or
other
person
in
possession

GOODS ARE NO LONGER CONSIDERED IN

TRANSITU:
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 the 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
Effects of the exercise of the right
1. The goods are no longer in transit.
2. The contract of carriage ends; instead the
carrier now becomes a mere bailee, and
will be liable as such.
3. The carrier should not deliver anymore to
the buyer or the latters agent; otherwise
he will clearly be liable for damages.
4. The carrier must redeliver to, or according
to the directions of the seller.
WAYS OF EXERCISING THE RIGHT TO STOP:
1. By taking actual possession of the goods
2. By giving notice of his claim to the carrier
or bailee
III.
Special Right of Resale
May be exercised only when the unpaid
seller has either a right of lien OR has
stopped the goods in transitu AND under
ANY of the following conditions:
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
3. Where the buyer delays in the payment
of the price for an unreasonable time

IV.
Rescission
Types:
1. Special Right to Rescind Under Art.
1534 If the seller has either the right
of lien OR a right to stop the goods in
transitu AND under either of 2
situations:
a. Where the right to rescind on
default has been expressly reserved
b. Where the buyer has been in
default for an unreasonable time
2. Under
Art.
1597
(technical
rescission)
V. Action for the price
When may be exercised:
1. Where the ownership has passed to the
buyer AND he wrongfully neglects OR
refuses to pay for the price
2. Where the price is payable on a day
certain AND he wrongfully neglects OR
refuses to pay for the price,
irrespective of the delivery or transfer
of title
3. Where the goods cannot readily be
resold for a reasonable price AND the
buyer wrongfully refuses to accept
them even before the ownership of the
goods has passed, if Article 1596 is
inapplicable.
VI.
Action for damages
When may be exercised:
1. In case of wrongful neglect or refusal
by the buyer to accept or pay for the
thing sold (Art. 1596 par.1)
2. In an executory contract, where the
ownership in the goods has not passed,
and the seller cannot maintain an
action to recover the price (Art 1595)
3. If the goods are not yet identified at
the time of the contract or
subsequently
B. REMEDIES OF THE BUYER FOR BREACH OF
CONTRACT
1. Action for specific performance (Art.
1598)

Where
the seller has broken the contract to
deliver specific or ascertained goods

The
judgment or decree may be unconditional,
or upon such terms and conditions as to

damages, payment of the price

otherwise as the court may deem just

and

2. Remedies of buyer for breach of warranty

by seller (Art. 1599):
1. Recoupment accept the goods and set up
the sellers breach to reduce or extinguish
the price
2. Accept the goods and maintain an action
for damages for breach of warranty
3. Refuse to accept the goods and maintain an
action for damages for breach of warranty
4. Rescind the contract by returning or
offering the return of the goods, and
recover the price of any part thereof
NOTE: These are alternative remedies.
When rescission by buyer not allowed:
1. if the buyer accepted the goods knowing of
the breach of warranty without protest
2. if he fails to notify the seller within a
reasonable time of his election to rescind
3. if he fails to return or offer to return the
goods in substantially as good condition as they
were in at the time of the transfer of
ownership to him
EXTINGUISHMENT OF SALE
1. Same causes as in all other obligations
2. Conventional Redemption
3. Legal Redemption
CONVENTIONAL REDEMPTION
The right which the vendor reserves to
himself, to reacquire the property sold
provided he returns to the vendee:
b. the price of the sale;
c. expenses of the contract;
d. any other legitimate payments made
therefore and;
e. the necessary and useful expenses
made on the thing sold; and
f. fulfills other stipulations which may
have been agreed upon.
A sale with conventional redemption is
deemed to be an equitable mortgage in any
of the following cases: (IPERTOD)
1. Unusually Inadequate purchase price;
2. Possession by the vendor remains, as lessee
or otherwise;
3. Extension of redemption period after
expiration;

4. Retention by the vendee of part of the

purchase price;
5. Vendor binds himself to pay the Taxes of
the thing sold;
6. Any Other case where the parties really
intended that the transaction should secure
the payment of a debt or the performance
of any obligation; or
7. When there is Doubt as to whether contract
is contract of sale with right of repurchase
or an equitable mortgage.
Equitable Mortgage
One which lacks the proper formalities,
form of words, or other requisites
prescribed by law for a mortgage, but
shows the intention of the parties to make
the property subject of the contract as
security for a debt and contains nothing
impossible or contrary to law (Cachola vs.
CA 208SCRA496)
* When can there be presumption as to
Equitable Mortgage?
1) Parties must have entered into a contract
denominated as a contract of sale
2) The intention of the parties was to secure an
existing debt by way of mortgage
NOTE: In the cases referred to in Arts. 1602
and 1604, the apparent vendor may ask for the
reformation of the instrument.
Remedy of Reformation: To correct the
instrument so as to make it express the true
intent of the parties.
Redemption Period
a. if there is an agreement: period agreed
upon cannot exceed 10 years
b. if no agreement as to the period: 4 years
from the date of the contract
c. the vendor who fails to repurchase the
property within the period agreed upon
may, however, exercise the right to
repurchase within 30 days FROM the time
final judgment was rendered in a civil
action on the basis that the contract was a
true sale with right of repurchase
This refers to cases involving a
transaction where one of the parties
contests or denies that the true
agreement is one of sale with right to
repurchase; not to cases where the
transaction is conclusively a pacto de
retro sale. Example: Where a buyer a
retro honestly believed that he entered

merely into an Equitable Mortgage, not

a pacto de retro transaction, and
because of such belief he had not
redeemed within the proper period.
NOTE: Tender of payment is sufficient to
compel redemption, but is not in itself a
payment that relieves the vendor from his
liability to pay the redemption price (Paez
vs. Magno.)
LEGAL REDEMPTION
The right to be subrogated, upon the same
terms and conditions stipulated in the
contract, in the place of one who acquires
a thing by (1) purchase or (2) dation in
payment, or (3) by any other transaction
whereby ownership is transferred by
onerous title.
May be effected against movables or
immovables.
It must be exercised within thirty (30) days
from the notice in writing by the vendor.\
NOTE: Written notice under Article 1623 is
mandatory for the right of redemption to
commence (PSC vs. Sps. Valencia 19 August
2003.)
BASIS OF LEGAL REDEMPTION: Not on any
proprietary right, which after the sale of the
property on execution, leaves the judgment
debtor and vests in the purchaser, but on a
bare statutory privilege to be exercised only by
the persons named in the statute.

Tender of payment is not necessary; offer

to redeem is enough.
PRE-EMPTION
1. arises before
sale
2. no rescission
because no sale as
yet exists
3. the action is
directed
against
the
prospective
seller

REDEMPTION
1. arises after sale
2. there can be
rescission of the
original sale
3. action is directed
against the buyer

Instances of legal redemption:

A. Under the Civil Code (legal redemption):
1. Sale of a co-owner of his share to a
stranger (Article 1620)

2. When a credit or other incorporeal

right in litigation is sold (Article 1634)
3. Sale of an heir of his hereditary rights
to a stranger (Article 1088)
4. Sale of adjacent rural lands not
exceeding one hectare (Article 1621)
5. Sale of adjacent small urban lands
bought merely for speculation (Article
1622)
B. Under special laws:
1. An equity of redemption in cases of
judicial foreclosures
2. A right of redemption in cases of extrajudicial foreclosures
3. Redemption of homesteads
4. Redemption in tax sales
5. Redemption by an agricultural tenant
of land sold by the landowner
ASSIGNMENT OF CREDIT
a contract by which the owner of a credit
transfers to another his rights and actions
against a third person in consideration of a
price certain in money or its equivalent
NOTE: Transfer of rights by assignment takes
place by the perfection of the contract of
assignment without the necessity of delivering
the document evidencing the credit.
this rule does not apply to negotiable
documents and documents of title
which are governed by special laws.
Effects of Assignment:
1. transfers the right to collect the full value
of the credit, even if he paid a price less
than such value
2. transfers all the accessory rights
3. debtor can set up against the assignee all
the defenses he could have set up against
the assignor
Effect of payment by the debtor after
assignment of credit
1. Before Notice of the assignment
Payment to the original creditor is valid
and debtor shall be released from his
obligation
2. After Notice
Payment to the original creditor is not
valid as against the assignee
He can be made to pay again by the
assignee

Warranties of the assignor of credit:

a. He warrants the existence of the credit
a. He warrants the legality of the credit
at the perfection of the contract
NOTE: There is no warranty as to the solvency
of the debtor unless it is expressly stipulated
OR unless the insolvency was already existing
and of public knowledge at the time of the
assignment
NOTE: The seller of an inheritance warrants
only the fact of his heirship but not the objects
which make up his inheritance.
Liabilities of the assignor of credit for
violation of his warranties
1. Assignor in good faith
Liability is limited only to the price
received and to the expenses of the
contract, and any other legitimate
payments by reason of the assignment
2. Assignor in bad faith
Liable not only for the payment of the
price and all the expenses but also for
damages
Legal Redemption in Sale or Credit or other
incorporeal right in litigation
Requisites:
1. There must be a sale or assignment of
credit
2. There must be a pending litigation at the
time of the assignment
3. The debtor must pay the assignee:
a. price paid by him
b. judicial cost incurred by him; AND
c. interest on the price from the date of
payment
4. The right must be exercised by the debtor
within 30 days from the date the assignee
demands (judicially or extra-judicially)
payment from him
SALE OF CREDIT OR OTHER INCORPOREAL
RIGHTS IN LITIGATION
GENERAL RULE: Debtor has the right of legal
redemption in sale of credit or incorporeal
rights in litigation
EXCEPTIONS:
a. Sale to a co-heir or co-owner
a. Sale to a co-owner
a. Sale to the possessor of property in
question