Recto Law (Article 1484, Civil Code of the Philippines)

The Recto Law is a provision under Philippine civil law governing installment sales of personal property. It provides protections to buyers who purchase personal property on installment, specifically addressing the rights and remedies of the seller in cases of buyer default. This law is part of the broader framework of the Civil Code of the Philippines, particularly under the law on sales, and is significant in installment purchase transactions.

Key Provisions of the Recto Law (Article 1484):

The Recto Law limits the remedies available to the seller in case the buyer defaults in paying for personal property sold on installments. Under Article 1484, the seller has the following options:

Exact fulfillment of the obligation:
- The seller may choose to demand that the buyer fulfills the terms of the contract. This remedy seeks to enforce the payment of the installments or the full purchase price as agreed.
Cancel the sale:
- The seller can rescind or cancel the contract of sale. This remedy is commonly referred to as rescission, and it involves terminating the contract and recovering possession of the item sold.
- In case of rescission, the seller is entitled to retain any payments made by the buyer as liquidated damages unless otherwise stipulated.
Foreclose the chattel mortgage:
- If the property is secured by a chattel mortgage, the seller may foreclose the mortgage and recover the property. However, this remedy comes with a significant restriction:
  - No further action for deficiency: Once the seller chooses foreclosure, they are prohibited from pursuing the buyer for any deficiency if the proceeds of the foreclosure sale are less than the unpaid balance of the purchase price.

Objective of the Recto Law

The primary aim of the Recto Law is to prevent sellers from abusing buyers in installment sales. It ensures that:

Buyers are not subjected to double jeopardy, such as losing the property and still being held liable for the unpaid balance.
Sellers are required to make a clear choice among the remedies, thereby avoiding situations where a buyer might face overlapping penalties.

Scope and Coverage

Personal Property: The Recto Law applies exclusively to the sale of personal property. It does not cover real property or immovable assets.
Installment Sales: The law specifically addresses sales where the purchase price is payable in installments. It is not applicable to cash sales or transactions where payment is made in a lump sum.

Illustrative Application

Suppose a buyer purchases a car on an installment basis and defaults on the monthly payments. Under the Recto Law:

The seller may sue the buyer to compel payment of the installments due (specific performance).
Alternatively, the seller may cancel the sale, repossess the car, and keep previous payments as liquidated damages.
If the seller chooses to foreclose the chattel mortgage, they cannot sue the buyer for any remaining balance after the foreclosure sale.

Limitations and Implications

Seller's Obligation to Elect a Remedy: Once the seller elects a remedy, they are bound by it and cannot subsequently choose another remedy.
Prohibition on Deficiency Claims: In foreclosure, the seller cannot recover any deficiency, even if the proceeds of the sale of the repossessed property are insufficient to cover the unpaid balance of the purchase price.
Protective Nature: The law is primarily protective of buyers, ensuring they are not unfairly penalized in installment sales.

Comparison with the Maceda Law

The Recto Law is often contrasted with the Maceda Law (R.A. 6552), which governs installment sales of real property. While both laws protect installment buyers, the Maceda Law applies to real property, while the Recto Law is limited to personal property.

Judicial Interpretations

The Philippine Supreme Court has consistently upheld the objectives of the Recto Law, emphasizing its intent to protect buyers from onerous remedies. Notable principles derived from jurisprudence include:

Sellers must strictly adhere to the limitations set by the Recto Law.
The law’s prohibition on deficiency claims in foreclosure is absolute.

Practical Considerations for Sellers and Buyers

For Sellers: Ensure that the terms of the installment sale comply with the law. Sellers must carefully evaluate their remedy upon buyer default, as their choice is binding.
For Buyers: Understand your rights under the Recto Law. If you default on payments, the seller cannot simultaneously repossess the property and demand additional payments.

Conclusion

The Recto Law is a critical legal safeguard for installment sales of personal property in the Philippines. By limiting the remedies available to sellers, it balances the interests of both parties, promoting fairness and protecting buyers from excessive penalties.