Buyer's Rights in A Sale of Real Estate or Condominium Unit/s on

Installment (R.A. 6552)

R.A 6552 or Maceda Law – governs the sale or financing of real estate including condominium
units which are purchased on installment basis. This law covers both absolute sales (deeds of
absolute sales) and contracts to sell, provided that the terms of those contracts have at least
two installments. The purpose of the Maceda Law is to protect buyers of real estate on
installments against onerous and oppressive conditions.
Maceda Law does not apply to a sale involving industrial lots, it also does not apply to a sale
involving commercial buildings or commercial lots, does not apply to sales to tenants under
agrarian reform laws and finally, it does not apply in case the sales of real estate is made in a
straight payment, one (1) payment only.

Rights of the buyer in case he has defaulted or failed to pay any installment.
Two (2) classifications of rights:
1. These rights will only arise in case the buyer has paid at least two years’ worth of
installments, not just two installments but two years’ worth of installments.

First, the buyer is allowed to pay the unpaid installments due without additional
interest and he is given a grace period within which to do that.

What is the grace period? It is one month for every one year of installment payments
made.

At the outset, the buyer, in case he has paid two years’ worth of installments,
already has at least 60 days as grace period because in this scenario remember, the
buyer must have paid at least two years’ worth of installments. However, this right to pay
within the grace period can only be used once every 5 years in the life of the contract or
any of its extensions.

2. In case the contract is cancelled, the buyer gets a refund.

How do we know what the refund is? The law says that the buyer will be entitled to
the cash payments surrender value of payments equivalent to 50% of the total
payments made. In case he has been payments exceeding 5 years or after 5 years, he
is entitled to an additional 5% refund for every year of payments made.

NOTE: There is a limit, the refund should not exceed 90% of the total payments made by
the buyer.

When do we know that cancellation will take place? Actual cancellation will only take
place within 30 days from receipt of the notice of cancellation or demand for rescission
 by notarial act or must be notarized. If it’s not notarized, that will affect the cancellation
and you will have a remedy to reinstate the contract because the cancellation is not
validly done. Here’s one more thing, and 30 days from full payment of the cash
surrender value to the buyer.

Why is that important? Because in the case of Liano vs. Court of Appeals, if the buyer
was not given the cash surrender value, then the contract is not yet cancelled and
since the contract is not yet cancelled the buyer may reinstate the contract. Meaning, he
can pay the unpaid installments within the grace period and the contract will still continue
to be effective as long as the payment is done before the actual cancellation.

Additional Rights
1. There are two more rights for the scenario where the buyer paid at least two years of
installments the buyer can also sell or assign his rights to another person or to a third
person or he can reinstate the contract by updating the account within the grace period
and before actual cancellation. And the final right is at any time within the life of the
contract, the buyer can pay any installment or even the full unpaid balance in advance,
so the buyer has the right to pay the contract in advance. This is the exception in the
rule in Oblicon, that the period should be respected because it is for the benefit of the
creditor and the debtor.
But in this case the buyer is allowed to pay in advance without any additional
interest, he is also given the right to annotate or have repayments annotated on the
certificate of title whether it be a condominium certificate, transfer certificate of title, no
matter what title, he can have his payment annotated.

2. When the buyer has paid less than two years’ worth of installment. His right here in
this case, he’s just given a grace period of 60 days counted from the due date of the last
installment. 60 days paid, if it’s paid then we have no problem. But if the buyer fails to
pay within the 60-day grace period then the seller may cancel the contract after 30
days from receipt of the buyer of the notice of cancellation or the demand for rescission
by notarial act.

He also has the right to sell or assign his rights to third persons or reinstate the
contract by updating the account as long as it’s done within the grace period and before
the actual cancellation. The buyer also has the right to pay any installments or even the
full price in advance without any interest.

REMEMBER:
In computing the installments made, we include the downpayments, the deposits
or any other amount like for option.
 Rights of the Buyer of Personal Property (Cars, Jewelries, Watches,
Shoes, etc.) on Installment Basis

Personal Property can be anything as long as it is not real or immovable property. The
governing law on the matter on the rights of the buyer and the remedies of the seller in case of a
sale of personal property on installment basis is Art. 1484 of the Civil Code of the Philippines.
This is otherwise known as the Recto Law.
The purpose of this Recto Law or Art. 1484 - A, is to remedy the abuses which are committed
in connection with the foreclosure of chattel mortgages and to prevent a creditor or a mortgagee
from seizing the mortgage property. They’ll get it and they’ll buy it at the foreclosure sale at a
very low price and then they’ll still file a suit, a case against the debtor or the mortgager for the
deficiency or the balance in what he has failed to pay. This law is to prevent this practice.
The Recto Law also applies to lease of personal property with the option to buy. Such as the
case where a car was allowed to be leased to a certain person and then he was also given the
option to buy that car after a certain number of years.
DOES NOT APPLY IN THE FOLLOWING INSTANCES:

 If the payment plan is straight payment or one payment

 To sales or mortgages of real property (immovable)
 Does not apply to replevin or an action to recover personal property in the possession of
another.
The law starts off by giving the remedies of a vendor who is not paid for the purchase of that
personal property. The remedies are:
1. Specific performance in case the buyer fails to pay.
2. Rescission or cancellation of the contract in case the buyer fails to pay two or more
installments.
3. Foreclosure of the chattel mortgage in case of the buyer’s failure to pay two or more
installments.
The remedies are alternative, meaning the seller, the creditor or the mortgagee can only
pick one. He cannot choose two or three remedies at the same time; it cannot be exercised
simultaneously. If there is a deficiency or a balance left to be paid, there is no more remedy to
be used after choosing one.
Now, there is an exception:
In case the seller or the creditor or the mortgagee chooses the remedy of specific
performance, and it becomes impossible, the seller, credit or the mortgagee can still choose
rescission.
1. Specific Performance

The seller will ask the court to compel the buyer to specifically perform his
obligation. This means that the seller is asking for fulfillment and compelling the
buyer to pay what is remaining of the balance due on his purchase. In case of specific
performance, the seller can also recover any deficiency (asking for the full payment).

2. Rescission
Rescission or cancellation of the contract can only be availed of in case the
buyer fails to pay two or more installments. The right of the buyer here is to say, “Hey,
you cannot choose rescission if you have chosen already specific performance or
foreclosure.”
When talking about rescission, the seller or creditor or the mortgagee will be
deemed to have chosen rescission or cancellation when the seller:

 Sends a notice (notice of rescission) to the buyer.

 Takes possession of the thing sold.
 Files action for rescission before the court.
In case the seller, creditor or mortgagee asks for rescission, and it is granted,
then the effect is the duty of mutual restitution. This means the parties have to return
to each other whatever they may have received by virtue of the contract. In other words,
the buyer must return the thing that was sold to him and the seller must also return any
installment payments. Except, if there is a stipulation in the contract stating that “the
installment payments previously paid before rescission shall be forfeited”. In case of
forfeiture, the buyer will only have to return the car and the installment payments will be
forfeited in favor of the buyer.
Only time that rescission will be considered invalid if it’s unconscionable (not
reasonable) under circumstances and that will depend on the factual circumstances, on
a case to case basis.

3. Foreclosure of the chattel mortgage

This remedy is used in case the buyer fails to pay two or more installments.
Chattel mortgage is a contract where personal property are recorded in the chattel
mortgage registered as security for performance of an obligation. It is an accessory
contract of security. In other words, the creditor can go after that contract when the
principal contract has been breached or not performed by the debtor.
In case of a chattel mortgage, remember that there can be no pactum
commissorium. In other words, upon failure or breach of the principal obligation, the
property cannot be the automatic property of the seller or the mortgagee. There has to
be a public auction or a private one, in case the parties have so agreed. The general rule
is that there must be a public auction where the property will be sold to the highest
bidder. In which case, the creditor can also bid and that’s the time when he can be the
legal owner.
Before foreclosure or before the public sale, the buyer has the right to make
additional payments or pay in full. This is called the equity of redemption. Again, the
period to exercise the equity of redemption is until the foreclosure sale because once the
chattel mortgage has been closed or the property has been sold, then the seller cannot
recover any balance or deficiency. Take note, this rule is only specific to Article 1484 or
the Recto Law because the rule in chattel mortgages is different.
Under Article 1484. If the personal property has been sold because of the
foreclosure of the chattel mortgage, the seller, creditor or mortgagee cannot recover
the deficiency or the balance in case the property was sold for an amount of less than
what the debtor still owes the creditor. This is expressly prohibited by the Recto Law.
In case there are other securities, the seller, creditor or mortgagee cannot go
after the additional securities if he has chosen to foreclose the chattel mortgage.
Why? Because if the creditor is after the guarantor and the guarantor pay the creditor,
then the remedy of the guarantor is still to go after the principal debtor. Then it will be as
if the debtor still paid to the creditor. There is a circumvention of the law.

REMEMBER:
If a seller assigns his credit to another person, then the new creditor is also
bound by the same law.

EXCEPTION to the rule that the seller cannot claim the deficiency:
Known as perverse mortgagor buyer or perverse buyer mortgagor. In case
the buyer hides the chattel mortgage to prevent the seller from foreclosing it, then if the
seller has to file extra actions to recover the property, then the Supreme Court has held
that the creditor may recover the expenses which he incurred in order to recover the
property, in order to foreclose the chattel mortgage.
 Sales Part 1: Nature, Kinds, & Distinctions

Contract of Sale
One of the parties, namely the seller that binds himself to deliver and to transfer ownership of a
determinate thing while the other known as the buyer should pay a price certain in money or its
equivalent.
A contract of sale is a consensual contract because it is perfected by mere consent. In other
words, it is perfected the moment the minds of the parties meet upon the object which must be a
determinate or determinable thing and upon a price which must be certain and be in money or
its equivalent.
The sale is also a bilateral contract or a reciprocal obligation and it imposes obligations on
both of the parties.
Onerous contract because it is for a valuable consideration.
Commutative contract in that the thing is equivalent to the value of the money or the price.
Nominate contract because the law gives you a specific or particular name.
Principal contract because it does not need any other contract for it to stand alone or to exist.

Title vs Mode
Sale is a title and not a mode.
What is a title? It is the legal basis by which ownership is affected. In other words, the sale by
itself does not transfer ownership. The most of the sale can do is to create the obligation to
transfer ownership. It is not a mode because a mode is the legal means by which ownership is
either created, transferred or destroyed and under the law there are seven (7) modes of
acquisition of ownership namely occupation, law, donation, tradition or delivery, intellectual
creation, prescription, and succession. In those seven we use traditional delivery here in sale.
Sale is the title in which is the basis to effect ownership, but the mode of transferring ownership
is tradition or delivery.

TWO KINDS OF SALES

1. Absolute sale – is simple, it’s not subject to any condition and follows the general rule
that ownership or title is transferred or passes upon delivery.
Even if the contract of sale is perfected by mere consent, ownership is only transferred upon
delivery.
2. Conditional sale – one where ownership is not transferred until the condition is fulfilled.
How will we know if a sale is an absolute sale or conditional?
If the condition is imposed upon the obligation of the seller to transfer ownership then it’s a
conditional sale. Meaning, that ownership will not be transferred until the happening of the
condition. But if the condition is simply imposed upon the payment of the price then that is an
absolute sale. The contract of sale is already perfected because payment and any condition
imposed upon payment is part of the consummation stage.

CONTRACT TO SELL
It is a specie of conditional sales. It is a bilateral contract where the ownership or title to the
thing is retained by the seller, ownership is still with the seller despite delivery to the buyer until
fulfillment of a positive suspensive condition usually the full payment of the purchase price.

AGENCY TO SELL
One person binds himself to do something or render some service on behalf of or in
representation of another with the consent or authority of the latter. It means that the agent is an
extension of the principle, and he can perform or acts which bind the principle in case he acts
within the scope of his authority.

 In the contract of sale if the buyer pays the price then he becomes the owner but in the
agency to sell, the agent receives the price and he has to give it to the principal. The
principal until the delivery of the price still remains to be the owner. Ownership does not
go to the agent.
 In a contract of sale, the buyer cannot generally return the thing after consummation of
the contract but in an agency to sell, in case the agent is unable to sell the things he
may return the things to the principal.
 In a contract of sale, the seller warrants the thing. But in an agency to sell there is no
warranty when the part of the agent. In the sale it cannot generally be unilaterally
revoked but in an agency to sell, the principal may unilaterally revoke the arrangement
because it is a fiduciary relationship which is founded upon trust.
 In a contract of sale at the effect of paying the purchase price is that the buyer
becomes the owner and he can exercise the attributes of ownership such as the right to
destroy, the right to dispose, etc. but in an agency to sell, the agent must act according
to the instructions of the principal.
Sale is an onerous contract and involves valuable consideration, donation does not. The
consideration in donation is the pure liberality of the donor because this is a gratuitous contract.
In a lease there is no transfer of ownership. You are merely leasing the property. Lease is more
or less a temporary arrangement while sale is more permanent in character.
CONTRACT FOR A PIECE OF WORK
As a general rule when services may be the proper object of a contract.
Services are not a proper subject for a contract of sale.
Why? Because contract of sales involves determinate things.

Massachusetts Rule:
We follow the Massachusetts Rule here in the Philippines. The goods that are manufactured
especially upon the special order of the buyer and not for the general market would be a
contract for a piece of work.