CONTRACTS

 A meeting of minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service.

REQUISITES
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract
3. Cause of the obligation which is established.

WHO CAN NOT GIVE CONSENT

1. Unemancipated minors;
2. Insane or demented persons, and deaf mutes who do not know how to write.

1. VITIATED CONSENT
 MISTAKE(SUBSTANTIAL)
 VIOLENCE (Serious, Irresistable)
 INTIMIDATION (imminent and grave)
 UNDUE INFLUENCE
 FRAUD

2. OBJECTS
Requisites
a) The thing or service must be within the commerce of man;
b) Must be transmissible;
c) Must not be contrary to law, morals, good customs, public order, or public policy;
d) Must not be impossible
e) Must be determinate as to its kind or determinable without the need of a new contract or agreement

3. CAUSE
 In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise
of a thing or service by the other
 And in contracts of pure beneficence, the mere liberality of the benefactor.

Dacion en Pago

- is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent
of the performance of an existing obligation. It is a special mode of payment where the debtor offers another
thing to the creditor who accepts it as equivalent to the payment of an outstanding debt. For dacion en pago to
exist, the following elements must concur:

a) existence of a money obligation;

b) the alienation to the creditor of a property by the debtor with the consent of the former; and

c) satisfaction of the money obligation of the debtor.

Payment by Cession

- Payment by cession is another special form of payment. It is the assignment or abandonment of all
the properties of the debtor for the benefit of his creditors in order that the latter may sell the same
and apply the proceeds thereof to the satisfaction of their credits.

Requisites of payment by cession:

a. There must be two or more creditors;
b. The debtor must be (partially) insolvent;
c. The assignment must involve all the properties of the debtor; and
d. The cession must be accepted by the creditors.

Effect of payment by cession:

 - Unless there is a stipulation to the contrary, the assignment does not make the creditors the owners of the
property of the debtor and the debtor is released from his obligation only up to the net proceeds of the sale of
the property assigned. (Art. 1255.) In other words, the debtor is still liable if there is a balance.

- Article 1255 refers to contractual assignment.

- The assignment of property under Article 1255 refers to voluntary or contractual assignment which requires
the consent of all the creditors as distinguished from legal or judicial assignment which is governed by the
Insolvency Law. (Sec. 8, Act No. 1956, as amended.) It merely involves a change of the object of the
obligation by agreement of the parties and at the same time fulfilling the same voluntarily.

Dation in payment (en pago) and cession distinguished:

- Dation in payment or dacion en pago is a special form of payment whereby another thing is alienated by the
debtor to the creditor who accepts it as equivalent of payment of an existing debt in money. There is no dation
if the transfer of property is by way of security only, and not by way of satisfying the debt. The differences are:

1) In dation (see Art. 1245.), there is usually only one creditor, while in cession, there are several creditors;

2) Dation does not presuppose the insolvency of the debtor or a situation of financial difficulties, while in
cession, the debtor is insolvent at the time of assignment;

3) Dation does not involve all the property of the debtor, while cession extends to all the property of the
debtor subject to execution;

4) In dation, the creditor becomes the owner of the thing given by the debtor, while in cession, the creditors
only acquire the right to sell the thing and apply the proceeds to their credits pro rata; and

5) Dation is really an act of novation (Art. 1291[1].), while cession is not an act of novation.
- Both are substitute forms of payment or performance. They are governed by the law on sales.

Illustration:
Lori Gadon is indebted to several creditors in the total amount of P5 million. Her assets are not sufficient to pay all his
debts.
With the consent of her creditors, Lori may assign property to them to be sold, to satisfy their credits. If the net
proceeds of the sale amount only to P3 million, Lori is still liable for the balance of P2 million unless there is a
stipulation that the assignment shall be in full satisfaction of all her debts.

RECTO LAW AS AMENDED

Article 1484. 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:

a) Exact fulfillment of the obligation, should the vendee fail to pay;

b) Cancel the sale, should the vendee’s failure to pay cover two or more installments;

c) 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.
MACEDA LAW (REPUBLIC ACT No. 6552)
AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS.
(Rep. Act No. 6552)

Section 1. This Act shall be known as the "Realty Installment Buyer Act."

Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against
onerous and oppressive conditions.

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments,
including residential condominium apartments but excluding industrial lots, commercial buildings and sales to
tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered
Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled
to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by
him which is hereby fixed at the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty percent of the total payments made, and, after five years of
installments, an additional five percent every year but not to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of
installment payments made.

Section 4. In case, where less than two years of installments were paid, the seller shall give the buyer a grace
period of not less than sixty 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 thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act.

Section 5. Under Section 3 and 4, 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. The deed of sale or assignment shall be done by notarial act.

Section 6. 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.

Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and
6, shall be null and void.
Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be affected
thereby.

Section 9. This Act shall take effect upon its approval.

Approved: August 26, 1972.

Republic Act No. 6552 also known as the “Realty Installment Buyer Act” and “Maceda Law” is a public policy that
has been declared to protect buyers of real estate on installment payments from onerous and oppressive
conditions. It was named after former Sen. Ernesto “Ernie” Maceda, who introduced legislation to assist buyers
who fail to make installment payments and was approved on August 26, 1972.

Maceda Law protects all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments, but excludes industrial lots, commercial buildings, and
sales to tenants under R.A. No. 3844, as amended.

Who is the Maceda Law applicable to?

- Maceda Law is applicable to two types of buyers – buyers who have paid at least two years of
installments and buyers who have paid less than two years of installments.

Maceda Law: Protection to Buyers of Real Estate on Installment Payments

- Buyers who have entered into a transaction or contract involving the sale or financing of real estate on
installment payments, including residential condominium apartments, and have paid at least two years or
less than two years of installment have the constitutional right:

Buyers who have paid at least two years of installments have the following rights if he fails to pay subsequent
installments payments:

 Pay without additional interest

- The unpaid installments are due within the total grace period earned by the buyer, which is fixed at the
rate of one month grace period for every year of installment payments made. Provided, however, that the
buyer may exercise this right only once in every five years of the contract’s life and any extensions if any.

 Refund the cash surrender value of the payments on the property if the contract is canceled

- If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments
on the property equal to fifty percent of the total payments made, and, after five years of installments, an
additional five percent every year, not to exceed ninety percent of the total payments made. Provided,
that the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of
the notice of cancellation or the deed.

Down payments, deposits, or options on the contract must be included in the total number of installment
payments made.

Buyers who have paid less than two years of installments

- The seller must provide the buyer with a grace period of at least 60 days from the date the installment
became due. If the buyer fails to pay the installments due by the grace period’s end, the seller may
cancel the contract 30 days after the buyer receives the notice of cancellation or the demand for
rescission of the contract by a notarial act.

How do you calculate the Maceda Law refund?

 - If the contract is canceled, the seller must refund the buyer the cash surrender value of the property
payments equal to fifty percent of the total payments made. Those who have paid installments for five
years or more will receive a five percent bonus for each year they have paid. The total amount
refundable, however, is limited to ninety percent.

Cash surrender value is computed as TP (total payments) x % RF ( Percentage of refund) = RF or CSV (Refund
or Cash surrender value). For example, your total payment is Php 10,000 and the installment payments were
made for 3 years, your cash surrender value is Php 5,000 (Php 10,000 x 50% = Php 5,000).

Can you sell or assign my property rights to another person in Maceda Law?

- Buyers have the right to sell or assign their rights to another person, or to reinstate the contract by
updating the account during the grace period and before the contract is actually canceled. The sale or
assignment must be done through a notarial act.

Can you pay the installments or the entire outstanding balance in advance?

- The buyer shall have the right to pay any installment or the entire unpaid balance of the purchase price
in advance at any time without interest, and such full payment of the purchase price shall be annotated
in the certificate of title covering the property.

Maceda Law during the New Normal

In the event that as a buyer you fail to pay your installment payments during the new normal, the following
options are available for you under the Maceda Law:

Grace period

Under the Maceda law, you would have two months to consider your decision. However, because of the health
crisis, and in accordance with Republic Act (RA) No. 11469, or the Bayanihan to Heal Law, a grace period of 30
days is applicable in areas subject to enhanced community quarantine (ECQ).

Cancellation of Purchase Contract

If you still want to cancel after the grace period, the Maceda law states that if you have gone through at least two
years of installment, you will receive a refund of 50% of what you paid for. If after five years of installments, an
additional 5% for each year of payments is added, but not more than 90% of the total payments made.

However, there is no refund for those who paid for less than two years. The grace period is provided to allow
residents to sell their property and allow the new owner to assume the remaining balance. This only applies if
you are paying the developer in installments.

Bank Loan Cancellation

It’s a different story if you’re paying with bank loan installments. If like most people, you obtain a housing loan
from a bank, this means that the balance owed to the real estate developer has already been paid in full by the
bank. This is an extremely common legal misunderstanding. Given that the property is technically fully paid for,
RA 6552 or the Maceda Law is no longer applicable.

Furthermore, banks do not offer refunds. Selling the property is one option. If you are unable to find a buyer, you
have the option of cutting your losses and initiating a “Dacion en pago” with the bank. “Dacion en pago” refers to
returning the property to the lender after the latter has dismissed the mortgage debt rather than not paying and
fleeing the bank.