ALTERNATIVE REMEDIES OF THE UNPAID SELLER UNDER RECTO LAW

(a) Specific Performance

(b) Cancellation of sale: If vendee fails to pay 2 or more installments
(i) When the seller cancels the sale by repossessing the property sold, he is barred from exacting payment
for its price.
(c)Foreclosure of Chattel Mortgage: If vendee fails to pay 2 or more installments
(i) If seller chooses this remedy, he shall have no further action to recover any unpaid
balance, and any stipulation to the contrary shall be void

(ii) What Art 1484 (3) prohibits is “further action against the purchaser to recover any unpaid balance of the
price;” and although this Court has construed the word “action” to mean “any judicial or extrajudicial proceeding
by virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance of
the purchase price from the purchaser or his privy,” there is no occasion at this stage to apply the restrictive
provision of the said article because there has not yet been a foreclosure sale resulting in a deficiency. The
payment of the sum of P1,250 of Sapinoso was a voluntary act on his part and did not result from a “further
action” instituted by Northern Motors. [Motors vs. Sapinoso, 1970]

(iii) The purpose of the law is to remedy the abuses committed in foreclosure of chattel mortgages. It prevents
mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing
the suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure was
that the mortgagor found himself minus the property and still owing practically the full amount of his original
indebtedness. [Bachrach Motor Co., Inc. v. Millan, 1935]

(iv) Remedies are ALTERNATIVE, not cumulative, i.e. exercise of one bars exercise of the others. [Nonato vs.
IAC, 1985]
Where the mortgagor unjustifiably refused to surrender the chattel subject of the mortgage upon failure of two
or more installments, or if he concealed the chattel to place it beyond the reach of the mortgagee, that thereby
constrained the latter to seek court relief, the expenses incurred for the prosecution of the case, such as
attorney's fees, could rightly be awarded. [Borbon II v. Servicewide (1996)]

Real Property – Maceda Law

This payment option in the Philippines is governed by the Republic Act No. 6552 or the Realty Installment
Buyer Protection Act. Named after the main author, former senator Ernesto Maceda, the Maceda Law
jurisprudence protects property owners from unfair conditions that could arise from sale transactions funded by
an installment arrangement. It describes the rights of a buyer defaulting in payments for such purchases.
Qualified buyers are entitled to a refund and grace periods.

In a sample scenario, let’s say you have opted to avail of the initial installment plan offered by a developer and
a location of your choice, thinking that you could get a favored house loan for it after two or three years of
building equity. Given that the odds were not mostly in your favor and your loan was not approved, you may
end up defaulting (meaning, you fail to meet the legal obligations, or conditions, of a loan). In this
situation, Maceda Law can protect your rights, and so you can also stand up and dust yourself off from this
dilemma. The following entails more elaboration on the scope of the law.

1. How do I know if this law would truly protect my rights in real estate installment purchases?

It is clearly stipulated in Section 2 of the Maceda Law of the Philippines that the protection of buyers of real
estate on installment payments against onerous and oppressive conditions is declared a public policy. The law
is on the side of the homebuyers should there be any misdemeanor committed on the side of the developer or
seller.

2. What transaction is covered by Maceda Law?

It covers real estate buying transactions or financing for residential properties such as houses, lots, and
condominiums under installment payment terms. Purchase transactions on industrial lots, commercial lots,
sales on tenants, and mortgage sales are not included. The Maceda Law aims to protect buyers from unfair
installment terms and conditions. Maceda Law serves as a remedy to low-income and middle-class buyers
who wish to own a property.
3. Who is covered by the Maceda Law?

As termed in the law, 2 types of “qualified buyers” are afforded protection:

 one who has paid at least 2 years of installments in all transactions or contracts involving the sale or
financing of real estate on installment payments. Properties covered include residential
condominiums, apartments, houses, townhouses, and houses and lots, among others, but excluding
industrial lots, commercial buildings, and sales of properties to existing tenants. (under Section 3)
 one who has purchased any of the properties enumerated above, but who has paid less than two years
of installments. (under Section 4)

4. What is the difference between Maceda and Recto Law?

A lot of people are confused with the Recto and Maceda Law. Both regulate the sale of property on installment
basis. The former however, forms part of the Civil Code, governing the sales of personal property, while the
latter is a special law ruling over sales of real property.

Personal property is anything you can move and is subject to ownership (except land). Real property, on the
other hand, cannot be moved, which includes land and anything attached to it.

5. What guarantees do I have should I fall behind in making payments or should the contract be canceled?

In simple terms, as it is stated in Section 3 of Maceda Law, buyers are entitled to a refund, as well as grace
periods, so long as they have paid for at least two years.

On defaulting:

 Buyers who default on their payments of installments are entitled to pay, without additional interest, the
unpaid installments due within the total grace period they have earned. This total grace period has
been fixed at the rate of a one-month grace period for every one (1) year of installment payments
made. However, this right can only be exercised by the buyer once every five years of the life of the
contract and its extensions.
On contract cancellation:

 If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments
on the property, which is equivalent to 50 percent of the total payments made. After five years of
installments, an additional five percent for every year of payments will be added, but not to exceed
90 percent of the total payments made. For this to apply, the actual cancellation of the contract must
take place 30 days after receipt by the buyer of the notice of cancellation. This notice of cancellation
or demand for rescission must be by a notarial act and upon the full payment of the aforementioned
cash surrender value to the buyer.
On grace periods:

 In times of crisis, say, a pandemic, where you probably would want to hold on to cash as much as
possible, the Maceda Law, according to property experts, grants two months of grace period if you’ve
finished two years of installment payments. It’s worth taking advantage of this temporary break from
obligations to seriously think through the decision of cancellation. However, if you’ve taken the time
to consider things, and would still like to proceed with canceling the contract, you can secure 50
percent of what you paid as a refund, as long as you’ve paid two years’ worth of installment
payments.

7. What guarantees do I have if I have paid less than two years of installments?

You are still primarily given the upper hand in this scenario since grace periods and notarized notices should
be given to you.

In Section 4, it is highlighted that the buyer is entitled to a grace period of not less than 60 days. This is
counted from the date the installment became due.
The seller, on the other hand, is entitled to the cancellation of the contract, if the buyer fails to pay the
installments due at the end of the grace period. The seller, however, must first notify the buyer of the
cancellation, or of the demand for rescission of the contract. This notice or demand must be by a notarial act
and shall only render the cancellation or rescission effective 30 days after such notice or demand has been
made.

8. Can I sell or assign my rights to the property to another person?

Yes, since this is clearly explained in Section 5 – that those buyers covered by Sections 3 and 4 have the right
to sell or assign their rights over the property to another person. They may also reinstate the contract if they so
choose by updating the account during the given grace period.

This transaction, however, must be made prior to the actual cancellation of the contract. The corresponding
deed of sale or assignment must be done by notarial act.

9. Can I opt to pay off my balance ahead of the due date? Will I be allowed to do so without incurring the
corresponding interests?

Yes. Stipulated in Section 6 of the Maceda Law, the rights of the buyer include paying in advance any of the
installments or the full unpaid balance of the property’s purchase price. This can be done at any time without
incurring interest. This full payment may also be annotated in the certificate of title over the property.

10. What if the contract I entered into is inconsistent with existing laws? Which will have more bearing?

Ordinarily, the Constitution would tell us that no law impairing the obligations of contracts shall be passed, but
in this case, the Maceda Law, under Section 7, provides that any stipulation in any contract that is contrary to
Sections 3, 4, 5, and 6 are to be deemed null and void. This particular provision serves to protect those who
may have overlooked the fine prints of contracts during the signing that has been required by real estate
contractors or developers.

In relation to this, should the developers be, in any possible way, at fault – in terms of delays and damages,
among others – the provisions of the Presidential Decree No. 957 or the Revised Rules and Regulations
Implementing the Subdivision and Condominium Buyer’s Protective Decree may instead be explored and
applied.

11. Does the Maceda Law apply when I pay through a housing loan from a bank?

This is where the common misconception usually lies in terms of the coverage of the Maceda Law.

To provide a quick background, developers nowadays merely require that the buyer pay a down payment,
which constitutes a percentage of the purchase price. The remaining balance would then often be shouldered
by a financing scheme (usually a housing loan) that may be provided by commercial banks, Pag-IBIG Fund, by
the developers themselves through their in-house financing schemes, or by other financing institutions.

If you are taking a housing loan from a bank, this means that the balance that you have to pay the real estate
developer has already been paid for in full by the bank through the loan. In other words, you, in essence, have
already paid the purchase price in full by availing of the loan. The subsequent monthly payments you now
make to the bank are not to pay for the balance of the purchase price, but for the loan itself, the interests
accruing on the principal loan, and the charges that may be or may have been incurred.

Hence, having been fully paid insofar as the purchase price is concerned, the only balance you are liable for is
that of the loan, and since you are not exactly paying in installments anymore, considering that the property is
technically fully paid for, RA 6552 or the Maceda Law would no longer apply.

12. Can a contract to sell be rescinded?

Rescission refers to the legal cancellation of the contract for a purchase transaction. Under the Maceda Law,
the seller is given the right to demand rescission of the contract to sell when the buyer fails to comply with the
payment terms. However, before a contract to sell can be rescinded, the buyer must first be given a grace
period. For those who have been paying installments for more than two years, the grace period is equivalent to
one month for every one year installment payments made. For buyers paying less than two years, the grace
period is not more than 60 days. This right can only be used by the buyers once every five years.

A contract to sell has a unique characteristic that distinguishes it from the other forms of contract. In a contract
to sell, a deed of sale is only executed upon full payment of the property’s purchase price. Thus, the seller
retains full ownership of the property until the payment is completed. When the buyer fails to complete the
payment or pay for the interests after the grace period, the buyer will be given a 30-day notice of delinquency
and cancellation. When the 30 days starting from the buyer’s receipt of the notice lapse and the buyer fails to
settle the payment, including interests incurred, only then will the seller be able to demand rescission for the
contract to sell.

12. How is the Maceda Law refund calculated?

Upon cancellation of the contract to sell, the seller must refund 50% of the total payments made. For those
who have paid installments for five years or more, an additional 5% for every one year will be added. However,
the total amount refundable is only limited to 90%.

13. Is down payment refundable in the Philippines?

The refund of the down payment is only applicable to those who have paid at least two years of installment on
the transactions covered by the Maceda Law.

14. Is the contract of sale a real contract?

According to Article 1458 of the New Civil Code, a contract of sale is a form of agreement where the seller
obliges himself to transfer the property’s ownership upon payment equivalent to its value. It is a legitimate
contract that explicitly implies property title transfer after the buyer fulfills its obligation to pay.

The crucial elements of a valid contract of sale are consent, where both parties agree to fulfill their obligations;
subject matter, which pertains to the property and its value discussed; and cause of obligation that indicates
the nature of the contract.

A contract of sale may be absolute or conditional. Absolute means there is no other condition aside from the
payment of the purchase price and the transfer of title, and conditional where certain conditions need to be
fulfilled before the property’s delivery.

It is important to note that a contract of sale is different from a contract to sell. In a contract of sale, the property
ownership is transferred upon the property’s turnover after full or constructive payment. In contrast, in a
contract to sell, the seller retains property ownership until the buyer fulfills all obligations and pays the total
purchase price.

15. Does a contract to sell need to be notarized?

Although a contract to sell remains valid even without notarization, it is necessary to notarize the contract to
sell to register it in public records. Under Sec 112 of the Property Registration Decree, any form of document
that affects registered and unregistered land shall be made available to public records and registered to the
Register of Deeds for accurate documentation.