Understanding Installment Sales: Contracts, Rights, and Guarantees

Understanding Installment Sales Contracts

An installment sale contract is an agreement where one party delivers movable property to another, and the recipient is obligated to pay a specified price, either in full or in installments, over a period exceeding three months from the contract's completion. This arrangement must be clearly defined to avoid ambiguity.

Perfection: A contract is considered 'perfected' when it meets all general contractual requirements and the property is delivered to the buyer.

Scope of Implementation

The following are excluded from the scope of installment sales:

• Sales for resale purposes
• Occasional sales for profit
• Sales or chattel mortgages secured by non-possessory pledges on assets
• Installment sales contracts with a value below the regulated threshold
• Lease contracts (leasing)

Form and Content

For validity, the contract must be in writing, with copies for each party involved. While voluntary provisions are permissible, the contract's core content is legally mandated. The retention of title clause, favoring the seller, is optional. Transfer of ownership can be restricted until full payment is received, unless the seller provides written permission.

Notably, the contract's effectiveness can be contingent on obtaining credit financing. However, clauses that obligate the purchaser to pay even if financing is not secured, or those requiring the buyer to obtain financing from a specific grantor, are not permitted.

Buyer's Rights: Withdrawal and Prepayment

The buyer has the right to cancel the contract within seven working days from the delivery date. This right is inalienable. Partial advance payments, not less than 20% of the agreed amount, are also permitted. Exercising the prepayment option may result in compensation for the seller.

Seller's Recourse in Case of Buyer's Default

In the event of the buyer's failure to meet obligations, the seller has the right to enforce the contract or seek its termination.

Financing Installment Sales

Installment sales fall under the purview of loan agreements designed to facilitate the acquisition of personal property. The lender may be listed as the owner of the credit for the deferred price against the buyer, either through direct funding or by reimbursing the buyer who purchases in cash and defers the loan.

Guarantees of Obligations

• Retention of title: The buyer acquires ownership only upon full payment, although they have a protected expectation of ownership.
• Bans on disposal: A legal guarantee preventing the buyer from disposing of the property until the payment obligation is fulfilled.

Enforceability Against Third Parties

To be enforceable against third parties, the retention of title and any disposal bans must be included in the contract and registered with the Installment Sale of Property registry.

Judicial Powers

Judges have the authority to modify agreed payment terms or establish new ones, including adjustments to the price premium for deferment.

Creditor Preference in Recovery of Claims

In bankruptcy or insolvency proceedings, the creditor's claim is prioritized and not included in the general pool of assets until the secured claim is satisfied.