RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS
two or more installments to allow the seller to
1. COVERAGE OF LAW
- Article 1484 of the Civil Code provides for the remedies of a
seller in contracts of sale of personal property by installments
and incorporates the provisions of the Recto Law
- Recto Law— known as the “Installment Sales Law” which
amended Article 1454 of the Old Civil Code (now Art. 1484)
- Under Article 1484, the seller may exercise any of the following
remedies:
o Exact fulfillment of the obligation, should the buyer fail
to pay any installment;
o Rescind the sale, should the buyer’s failure to pay cover
two or more installments;
o Foreclose the chattel mortgage on the thing sold, if one
has been constituted, should the buyer’s failure to pay
cover two or more installments.
- If seller chose to foreclose= cannot recover any deficiency/
unpaid balance
o Agreement to the contrary= void
a. Rationale of Recto Law
o Remedy abuses by sellers who buy the foreclosed
property for a low price then bring a suit against the
mortgagor for a deficiency judgment.
§ The result is mortgagor lot his property + still
have remaining debt
b. When Is Sale “on Installments?”
o Only one payment to be made= Recto Law n/a,
deficiency judgment √
§ buyer needs to have defaulted in the payment of
rescind or foreclose on the chattel mortgage.
o Recto Law is really aimed at those sales where the price
is payable in several installments
c. Loans and Financing Transactions
o Article 1484 would apply to a person or entity which has
financed the purchase on installments of a movable,
where the seller subsequently assigns the loan
documents to the financing person or entity.
d. Contracts to Sell Movables Not Covered
o Because rules on rescission and substantial breach are
not applicable
2. REMEDIES PROVIDED UNDER ART. 1484
a. Nature of Remedies under Article 1484
o Alternative, not cumulative, in that the exercise of one
would bar the exercise of the others
o Remedies cannot also be pursued simultaneously
b. Two Groups of Barring Effects of Remedies
o Article 1484 of the Civil Code actually has two (2) levels
of barring effects:
§ first level on the choice of remedies
§ the second level, on the non-recovery of any
unpaid balance when it comes to the remedies
of rescission and foreclosure
o If seller sued to collect amount and judgment resulted
in the levy on execution and eventual sale at public
 auction= seller can recover on the unpaid balance/
deficiency
§ Buyer can still retain possession of the property
by giving a counterbond and thereby discharging
the attachment.
3. REMEDY OF SPECIFIC PERFORMANCE
- GR: When the seller has chosen specific performance, he can
no longer seek for rescission nor foreclosure
XPN: If the seller had chosen specific performance, but the
same has become impossible, he may still choose rescission
- Mere sending of demand letters ≠ specific performance
4. REMEDY OF RESCISSION
- GR: When a seller chooses the remedy of rescission, he is under
obligation to make restitution (return any amount of the
purchase price buyer paid)
XPN: A stipulation for the forfeiture of the amounts paid by the
buyer allowed as long as not unconscionable
o Rationale: It offers a means of restitution to the seller
for the loss in value or deterioration of the thing subject
of the sale
o In fact, rescinding party may recover damages when
rescission is chosen
a. When Rescission Deemed Chosen
o When seller:
§ Sends a notice of rescission
§ Takes possession of the subject matter of the
sale
§ Fles an action for rescission
b. Barring Effect of Rescission
o Bar on recovery of balance implied in rescission
o When the seller takes possession of the subject
property in rescission of the sale, the seller is barred
from recovering the balance of the price
§ Seller is even required to give back the purchase
price already paid
§ BUT seller may recover damages
5. FORECLOSURE OF CHATTEL MORTGAGE CONSTITUTED ON SUBJECT
PROPERTY
a. When Remedy of Foreclosure Deemed Chosen
o Only at the time of actual sale of the subject property at
public auction pursuant to the foreclosure proceedings
commenced is the point where seller is deemed to have
chosen the remedy of foreclosure
o Filing replevin ≠ foreclosure
b. Barring Effect of Foreclosure
o It is the foreclosure and actual sale at public action that
shall bar further recovery by the seller of any balance
§ Prior to that, seller has the right to receive
payments on the unpaid balance from buyer
c. Barring Effect on Other Securities Given for Payment of Price
o When the assignee forecloses on the chattel mortgage,
there can be no further recovery of the deficiency

d. Extent of Barring Effect
o GR: Extent of the barring effect of foreclosure is all-
encompassing and did not limit itself to the balance of
the purchase price.
§ Original version of Recto Law is explicit: if the
vendor has chosen to foreclose the mortgage he
shall have no further action against the
purchaser for the recovery of any unpaid
balance owing by the same, any agreement to
the contrary shall be null and void.
§ Seller cannot recover:
• Interest
• attorney’s fees
• expenses of collection
• costs
§ Were it the intention of the Legislature to limit
its meaning to the unpaid balance of the
principal, it would have so stated.
o XPN: Perverse buyer-mortgagor
e. Perverse Buyer-Mortgagor
o If buyer refuses to surrender the chattel to the seller to
allow the latter to be able to proceed with foreclosure,
seller allowed to recover expenses and attorney’s fees
incurred in trying to obtain possession of the chattel.
6. EFFECT OF PPSA
- Merely to replace the third remedy of foreclosure with the
remedy of enforcement through public or private sale of the
collateral.
o Should not be construed to have removed the third
remedy and the prohibition on recovery of deficiency in
case of foreclosure.
- Thus, cases under Recto Law is an exception to Sec. 52(b) of the
PPSA because the evil sought to be prevented by the RL still
exists.
MACEDA LAW: SALES OF REAL ESTATE ON INSTALLMENTS
MACEDA LAW
- RA No. 6552, entitled the “Realty Installment Buyer Protection
Act”
- Provides for certain protection to particular buyers of real
estate payable on installments.
- The law declares as “public policy to protect buyers of real
estate on installment payments against onerous and oppressive
conditions.”
- To protect lot buyers, mostly low income earners, who are
entrapped by sellers who add in fine print onerous default
clauses where all the installment payment made will be
forfeited to pay any installment due even if the buyers had
made payments for several years.
a. “Role” of Maceda Law
o An expression of public policy to protect buyers of real
estate on installments against onerous and oppressive
conditions
b. Retroactive Application of Law
o Inconsistent ruling
o In one case, SC has extended the formal requirements
of rescission under the Maceda Law to apply even to
 contracts entered into prior to the effectivity of the
Maceda Law.
o In another case, it refused to do so
1. TRANSACTIONS COVERED
- Maceda Law does not cover all sales of realty on installments
- Primarily residential real estate
- Unlike Recto Law on movables, the Maceda Law covers not only
“sales” on installments of real estate, but also “financing” of
such acquisitions.
- ML also applies to both contracts of sale and contracts to sell.
- Should involve at least two (2) installments to be paid in the
future
a. Maceda Law Covers Contracts to Sell
o The employment of the term “cancellation” under the
Maceda Law clearly indicates that it covers contracts to
sell residential real estate on installments.
o The non-fulfillment of condition under a contract to sell
does not take it out of the Maceda Law.
2. TRANSACTIONS EXCLUDED FROM COVERAGE
- The following transactions, although involving sales on
installments, are expressly excluded from the coverage of the
Law, thus:
a) Sales covering industrial lots
b) Sales covering commercial buildings (and
commercial lots by implication)
c) Sales to tenants under agrarian reform laws
- The enumeration of the transactions not covered by the
Maceda Law is not exclusive
o Other transactions over immovables are to be
considered as excluded because they are not within the
clearly expressed coverage (e.g., sale on installment of
commercial or office condominium units)
a. Maceda Law Cannot Be Invoked by Highest Bidder in
Foreclosure Proceedings
o ML cannot be invoked by a person or entity who
acquired the subdivision lots in a foreclosure sale on the
mortgaged constituted thereon by the developer.
3. RIGHTS GRANTED
- The rights granted to a buyer of real estate in a sale or financing
covered by the Maceda Law, depend on whether or not he has
paid less than or more than two (2) years of installments.
a. At Least Two (2) Years Installments Paid
o Buyer is entitled to the following rights in case he
defaults in payments of succeeding installments:
§ To pay, without additional interest, the unpaid
installments due within the total grace period
earned by him, which is fixed at the rate of one
(1) month grace period for every one (1) year of
installment payments;
§ If the contract is cancelled, the seller shall refund
to the buyer the cash surrender value of the
payments on the property equivalent to 50% of
the total payments made and, after five (5) years
of installments, an additional 5% every year but
not to exceed 90% of the total payments made.
(1) Exercise of Grace Period
 § Can be exercised by the buyer only once in every
five (5) years of the life of the contract and its
extensions, if any.
(2) How Cancellation of Contract Can Be Effected
§ The actual cancellation of the contract shall take
place after thirty (30) days from receipt by the
buyer of:
• The notice of cancellation or
• Demand for rescission of the contract by
a notarial act and upon full payment of
the cash surrender value to the buyer.
§ Action for annulment of contract= rescission by
notarial act
§ Demand to vacate ≠ notice of cancellation or
demand for recission “by a notarial act”
§ Case for unlawful detainer ≠ notarial act
b. Less Than Two (2) Years Installments Paid
o Buyer shall still be entitled to a grace period of sixty (60)
days from the date the installment became due.
o If buyer fails to pay at the expiration of the grace
period= seller may cancel the contract after thirty (30)
days from receipt by the buyer of:
§ notice of cancellation; or
§ demand for rescission of the contract by a
notarial act.
c. Compensation Rule on Amortization Payments
o Principle of compensation to be applicable to remedies
under the Maceda Law.
o Default committed by the buyer in respect of the
obligation could be compensated by the interest and
surcharges imposed upon the buyer under the contract.
d. Formula to Compute the Installment Mode
o Down payments or reservation fee shall be included in
the computation of the total number of installment
payments made to be divided by the stipulated mode of
payment, i.e., whether it is monthly, quarterly, semi-
annual or annual.
4. INTERPRETATION OF GRACE PERIOD AND MODE OF
CANCELLATION
- Rescission or cancellation of the contract not a matter of right
by seller even if buyer fails to avail of the grace period granted
to him
- There are requirements to be followed first:
o Notarial act of rescission
o Refund to the buyer the cash surrender value of the
payments on the property
o Actual cancellation of the contract can only be deemed
to take place upon the expiration of a 30-day period
after the receipt by the buyer of the notice of
cancellation or demand for rescission by a notarial act
and the full payment of the cash surrender value.
5. OTHER RIGHTS GRANTED TO BUYER
- In addition, the Maceda Law provides for the following rights to
the buyer:
(a) 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
assignment shall be done by notarial act.
(b) 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.

6. EFFECT OF CONTRARY STIPULATIONS

- Any stipulation in any contract entered into contrary to the
provisions of ML, shall be null and void.

7. MACEDA LAW CANNOT BE AVAILED OF BY DEVELOPER

- Maceda Law has no application to protect the developer or one
who succeeds the developer
o Rationale: The declared public policy is ‘to protect
buyers of real estate on installment payments against
onerous and oppressive conditions.’
§ It is to protect the buyer, not the developer-
seller or his successor-in-interest.