13 June 2019

For: Atty. John Noah M. Red

From: Niel Pangan
Re: Maceda Law Provisions on Installment, Total Payments and Refund

Below is a summary of the points discussed in the attached paper on the application of R.A. No. 6552 or
the Maceda Law. The research focuses on the definition and interpretation of installment, total payments made, and
full payment of the cash surrender value.

1. Definition of "installment" in the Maceda Law (RA 6552)

Jurisprudence defines “installment” as ratably apportioned payments across a period, typified by regular and
fractional payments. The Court in Orbe v. Filinvest adopted the definition of installment in the earlier case of
Hermanos as “partial payments consisting of relatively small amounts.”

The phrase “two years of installments” under Section 3 of the Maceda law refers to value and time—i.e.,
the proportionate value of the installments made. To fall under the two-year threshold, the total payments made
should be divided by the rate of installment and result in at least 24 months (see illustration in page 3 of the paper).

2. Are deferred cash payments covered by the Maceda law?

Deferred payment scheme through amortized amounts over fixed period is considered an installment plan
under the Maceda Law. The characterization of payments as installments is not conditioned on the existence of
interest for each payment or the length of period of installment payments.

3. In case of restructured accounts or contracts, are the payments made prior to restructuring
considered in the counting of the number of installments paid by the buyer?

Whether the payments made prior to restructuring be considered in the counting of the number of
installments paid by the buyer depends on the effect of restructuring on the original agreement. If the restructured
agreement novates the original contract, the running of period of installment payment is interrupted (Fabrigas v San
Francisco). If the restructured terms are not incompatible with the initial agreement (Jestra v. Pacifico), such that no
novation takes place, the previous installment payments will be counted.

4. Scope of "total payments made" under RA 6552 – inclusion or exclusion of interest, surcharges,
and penalties and other charges

“[T]otal payments made” includes: payment on the principal, interests and taxes; but excludes penalties and
other charges. The deduction of administrative and marketing costs to the total payments should be agreed upon by
the parties subject to the intended protection of the buyers against onerous and oppressive conditions (see matrix
on arguments for and against deduction of items to the total payments value in page 10).

5. What constitutes payment of the cash surrender value as condition for the rescission of the
contract?

There should be actual payment of the cash surrender value as defined under the provisions of the Civil
Code—i.e., delivery. If the buyer refuses to receive payment of the refund, the seller may resort to tender and
consignation in order to later cancel the contract. A more practical and favorable arrangement for the seller is to
stipulate on the contract the manner and condition of payment in cases of refund (e.g., deadline to collect refund
and place of payment), which will be binding between the parties pursuant to their autonomy as contracting parties.
Similarly, this is subject to the policy of the Maceda law to protect real estate buyers and the provision of the Civil
Code on bad faith and fraud.