What is the Recto Law?

A: People who purchase personal property, as opposed to real property, on installment are
protected by the Recto Law. Authored in 1933 by the “Great Academician,” Senator Claro M.
Recto, the statute was called Act No. 4122, otherwise known as the Installment Sales Law.
Its main purpose is to prevent potential abuses by the seller in the event that the buyer is
unable to make further installments for a property.

It was passed by the Philippine Legislature on December 9, 1933. The law amended a
certain portion of the Civil Code of 1889 (Código Civil) through the insertion of Section
1454-A.

The Civil Code of 1889 itself was repealed by Republic Act No. 386 which took effect in
1950. It became known as the Civil Code of the Philippines. This expanded Section 1454-A
into what are now Articles 1484 to 1486 of the Civil Code. These are the provisions that
currently contain the precepts of the Recto Law.

Although primarily for buyers of personal property in installments, it was used in a

particular case involving a contract of lease even without a clear option to buy. The
agreement was not actually to lease the personal property but to acquire it upon the
fulfillment of the purported contract.

How is it different from the Maceda Law?

The main contrast between the two statutes lies in its application. Articles 1484 to 1486 of
the Civil Code govern sales on installment of personal property. On the other hand,
the Maceda Law or Republic Act No. 6552 applies to purchasers of real property on an
installment basis. The latter is also known as the Realty Installment Buyer Act and
contemplates residential properties in particular.

The Maceda Law requires certain requisites before a purchaser of real property can benefit
from its provisions. Those who have paid less than two years’ worth of installments only
have a sixty-day grace period to satisfy an installment that has become due. Failure to pay
allows the seller to send the buyer a notice to rescind the contract, which may be cancelled
after thirty days from its receipt. A buyer who has paid more than two years’ worth of
installments can have a grace period of one month for every year paid, provided that this is
exercised only once every five years. If cancelled, the purchaser may recover 50% of the
payments made with an additional 5% for every year after five years.

The Recto Law, on the other hand, gives the latter three alternatives instead of cumulative
choices to terminate a contract:

 Demand payment
 Cancel the sale
 Foreclose the mortgage

Note that the buyer must be in default by two or more installments before any of the
remedies may be exercised.

To whom does the Recto Law apply?

It applies to both the buyer and the seller. In some cases, the parties can also be regarded
as the lessor and lessee. It can also govern certain transactions entered into by a
mortgagor and mortgagee of personal properties.

The buyer (or lessee or mortgagor) can select from the three alternatives as well, insofar as
they are applicable. This law will also govern leases with an option to purchase, such as in
the aforementioned case. However, the Recto Law does not cover straight sales wherein a
down payment is given and the remaining balance is agreed to be fulfilled through a single
payment.

Even if the Recto Law was authored to prevent abuses by mortgagees (lenders), it is quite
possible that a mortgagor in default may increase his liability. This happens when the
mortgagor fails to pay two or more installments and refuses to return the personal property
upon the seller’s demand. Should there be an action for replevin to recover such property
and the court rules in favor of the seller, the buyer might have to pay costs and attorney’s
fees as well.

The seller could likely be penalized in similar fashion should the Recto Law be violated. One
remedy would prevent the seller from exercising the others. For instance, if the buyer has
already returned the personal property to the seller, the seller can no longer try to collect the
remaining installments. This would be viewed as an unnecessary legal proceeding should
the seller pursue more than one remedy in court. It would cause the buyer to make
additional needless expenses which will likely be paid for by an erring seller.

Although a great deal of effort and research was put into the creation of this article, Lamudi
Philippines always advises home buyers and future property owners to consult with
professionals, such as licensed real estate brokers and attorneys, to ensure their real estate
transactions are properly and promptly processed.