412 LAW ON SALES

or more popularly known as the Maceda Law, [its] declared policy

is to protect buyers of real estate on installment basis against
onerous and oppressive condition. The law seeks to address the
acute housing shortage problem in our country that has prompted
thousands of middle and lower class buyers of houses, lots and
condominium units to enter into all sorts of contracts with private
housing developers involving installment schemes. Lot buyers,
mostly low income earners eager to acquire a lot upon which to
build their homes, readily affix their signatures on these contracts,
without an opportunity to question the onerous provisions therein
as the contract is offered to them on a “take it or leave it” basis.
Most of these contracts of adhesion, drawn exclusively by the
developers, entrap innocent buyers by requiring cash deposits
for reservation agreements which often time include, 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. Real estate developers thus
enjoy an unnecessary advantage over lot buyers who they often
exploit with iniquitous results. They get to forfeit all the installment
payments of defaulting buyers and resell the same lot to another
buyer with the same exigent conditions. To help especially the low
income lot buyers, the legislature enacted R.A. 6552 delineating
the rights and remedies of lot buyers and protect them from one
sided and pernicious contract stipulations.”156

a. “Role” of Maceda Law

It would seem that more than just providing for a substantial
and procedural setting for the rescission and cancellation of
contracts covered therein, the Maceda Law in whole is relied
upon and used by the courts, including the Supreme Court, as “a
policy statement” of the State in protecting the interests of buyers
of residential real estate on installments. Thus, in the McLaughlin
v. Court of Appeals157 the Court took the Law “as an expression
of public policy to protect buyers of real estate on installments
against onerous and oppressive conditions (Sec. 2 of Republic

156
Ibid, at p. 158.
157
144 SCRA 693 (1986).
 REMEDIES OF PARTIES 413

Act No. 6552).”158 If that be the case, then the value of the Maceda
Law goes beyond its language and can be interpreted to further a
policy that may not even be found within its language.
Take for example the case of Palay, Inc. v. Clave,159 which
involved a contract to sell entered into by the parties in 1965 (the
Maceda Law took effect in 1972), which provided for automatic
extrajudicial rescission upon default in payment of any monthly
installment after the lapse of 90 days from the expiration of the
grace period of one month, without need of notice and with forfei-
ture of all installments paid. Although the Maceda Law was inap-
plicable, the Court took into consideration Section 3 of the Law
which provided for the indispensability of notice of cancellation to
the buyer and declared “it is a matter of public policy to protect
buyers of real estate on installment payments against onerous
and oppressive conditions. Waiver of notice is one such onerous
and oppressive condition to buyers of real estate on installment
payments.”160

b. Retroactive Application of Law

In Siska Dev. Corp. v. Office of the President,161 the Court
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.
However, in one case, the Court refused to apply retroactively
the terms of the Maceda Law, thus: “As with Presidential Decrees
Nos. 9576 and 1344, Republic Act No. 6552 does not expressly
provide for its retroactive application and, therefore, it could not
have encompass(ed) the cancellation of the contracts to sell
pursuant to an automatic cancellation clause which had become
operational long before the approval of the law.”162

158
Ibid, at p. 700.
159
12 SCRA 639 (1983).
160
Ibid, at pp. 66-67.
161
231 SCRA 674 (1994).
162
People’s Industrial and Commercial Corp. v. Court of Appeals, 281 SCRA 206
(1997).
414 LAW ON SALES

1. Transactions Covered
It should be noted that the Maceda Law does not cover all
sales of realty on installments, but primarily residential real estate.
But unlike the Recto Law on movables, the Maceda Law covers not
only “sales” on installments of real estate, but also “financing” of
such acquisitions. It expressly covers “all transactions or contracts
involving the sale or financing of real estate on installment
payments, including residential condominium apartments.”163
Unlike Article 1592 of the Civil Code, which the Court has
interpreted not to be applicable to contracts to sell, the Maceda
Law clearly includes in its provisions both contracts of sale and
contracts to sell. This conclusion is clear from the use by the
Law of the twin terms of “notice of cancellation or the demand for
rescission” of the contract.
On the other hand, we would adopt for the Maceda Law the
same definition of “sale by installments” held by Levy Hermanos,
Inc. for sales of movables by installments, which should involve
at least two (2) installments to be paid in the future at the time of
the perfection of the contract. The rationale of Levy Hermanos,
Inc. as to sales of movables, equally should apply to sale of real
estate in installments, thus: “the law is aimed at those sales where
the price is payable in several installments, for, generally, it is
in these cases that partial payments consists in relatively small
amounts, constituting thus a great temptation for improvident
purchasers to buy beyond their means.”164
In any event, the public policy behind the Maceda Law is
so all-encompassing with respect to residential real estate and
condominium units, that it would cover even sales or financing
transactions which may not fit into the “installment” concept.

a. Maceda Law Covers Contracts to Sell

The employment of the term “cancellation” under the Maceda
Law clearly indicates that it covers contracts to sell residential
real estate on installments.

163
Sec. 3, Rep. Act 6552.
164
Ibid, at p. 54.
 REMEDIES OF PARTIES 415

For that reason, the author finds quite surprising the ruling in
Mortel v. KASSCO, Inc.,165 which held that when a contract to sell
is constituted over a condominium unit subject to the suspensive
condition which is the acquisition of individual condominium
certificates of title (CCT) over the building which seller undertook
to accomplish within one year from the date of execution, then the
non-fulfillment of the condition extinguished the contract meant
that “the contract to sell did not take into effect. Consequently,
the [Maceda Law] invoked by [buyer] ... find no application to the
present case because said laws presuppose the existence of a
valid and effective contract to sell a condominium.”166
The reasoning in Mortel is defective for the following
reasons: First, there is no doubt under the provisions of the
Maceda Law that it covers both contracts of sale and contracts
to sell on installments condominium units, and the coverage is
based on the nature of the contract and subject matter at the time
of perfection, and not what happens at consummation. Secondly,
precisely when the conditions attaching to the contract to sell
(such as non-payment of the installments) is not fulfilled which
have the effect of “extinguishing” the contract, the Maceda Law
governs the effective remedies and consequences available to
the parties (i.e., notarial rescission and return of cash surrender
value, etc.). Therefore, 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); and
(c) Sales to tenants under agrarian reform laws.

165
348 SCRA 391 (2000).
166
Ibid, at p. 398.
416 LAW ON SALES

The enumeration of the transactions not covered by the

Maceda Law is not exclusive, since other transactions over
immovables, although not within the enumerated exclusions are
to be considered as excluded because they are not within the
clearly expressed coverage. An example would be the sale on
installment of commercial or office condominium units.
In one case, the Court held that the Maceda Law normally
applies to the sale or financing of real estate on installments
payments, and excludes “industrial lots, commercial buildings,
and sales to tenants under R.A. No. 3844. It has no application
to a sale on installment of a commercial building.167

a. Maceda Law Cannot Be Invoked by Highest

Bidder in Foreclosure Proceedings
The Court has ruled that the terms of the Maceda Law 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. Such person or entity, although binding itself to the
terms of the contracts of sale, is not the real party to the original
installment sales, and more importantly, does not have any rights
promoted under the Maceda Law which contains provisions for
the benefits of real estate buyers on installments.168

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

Where the buyer has paid at least two (2) years of install-
ments, he is entitled to the following rights in case he defaults in
the payments of succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period

167
Odyssey Park, Inc. v. Court of Appeals, 280 SCRA 253 (1997).
168
Lagandao v. Court of Appeals, 290 SCRA 330 (1998).
 REMEDIES OF PARTIES 417

earned by him, which is fixed at the rate of

one (1) month grace period for every one
(1) year of installment payments;
(b) 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

The right to make use of the 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.
Down payments, deposits or options on the contract shall
be included in the computation of the total number of installments
made.

(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 cancella-
tion or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.
In one case,169 it was held that a decision rendered is an
ejectment case operated as the required notice of cancellation,
pursuant to Section 3(b) of the Maceda Law. In an earlier case,170
the Court dispensed with the additional formality of a demand on
the seller’s part for recission superfluous since the action filled
was one for “annulment of contract, which is kindred concept of
rescission by notarial act.”
In another case,171 it was held that the letter notice given
by the seller’s counsel which merely made formal demand upon
169
Layug v. Intermediate Appellate Court, 167 SCRA 627 (1988).
170
Leaño v. Court of Appeals, 369 SCRA 36 (2001).
171
Pagtulungan v. Dela Cruz Vda. De Manzano, 533 SCRA 242 (2008).
418 LAW ON SALES

the buyer to vacate the premises in question did not serve the
same requirement as that of notice of cancellation or demand
for recission “by a notarial act” as required under the Maceda
Law. It was also reitereated that a case for unlawful detainer
does not exempt the seller from complying with the notarial act
required under the law.

b. Less Than Two (2) Years Installments Paid

In case where less than two (2) years of installments were
paid, the buyer shall still be entitled to a grace period of sixty (60)
days from the date the installment became due.
If the buyer fails to pay the installments due at the expi-
ration of the grace period, the seller may cancel the contract
after thirty (30) days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act.

c. Compensation Rule on Amortization Payments

The Court’s ruling in Leaño v. Court of Appeals,172 recognizes
the principle of compensation to be applicable to remedies under
the Maceda Law.
Leaño held that although the contract to sell allows
a total of 10 years within which to pay the purchase price,
nevertheless, the buyer cannot ignore the stipulation on the
monthly amortization payments required under the contract by
claiming that the ten-year period within which to pay has not
elapsed. When the buyer fails to pay any monthly amortization,
he is under Article 1169 already in default and liable for the
damages stipulated in the contract. Nevertheless, the Court
agreed with the trial court that the 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.

172
369 SCRA 36 (2001).
 REMEDIES OF PARTIES 419

d. Formula to Compute the Installment Mode

In Jestra Dev. and Mgt. Corp. v. Pacifico,173 the Court clari-
fied that the proper formula to apply in determining how many
installments have been made is to include any payment made
as downpayment or reservation fee as part of the installments
made, and then to divide them by the stipulated mode of pay-
ment, i.e., whether it is monthly, quarterly, semi-annual or annual.
Thus, in Jestra, where the Contract to Sell provided for a
total Purchase Price of 52,500,000 with 30% thereof or 5750,000
was to a downpayment payable in six montly installments, and
the balance of 51,750,000 was to be paid in 10 years of equal
payment of 534,983 the Court used the stipulated divisor of
5121,666.66 for the period covering the downpayment, and
refused to apply the monthly amortization of 534,983 as the
divisor to all payments made by the buyer. The result was quite
substantial in that the Court found the buyer to have paid less
than 2 years of installments, and therefore not entitled to receive
any cash surrender value to complete the effect of the notice of
cancellation of the Contract to Sell.

4. Interpretation of Grace Period and

Mode of Cancellation
Although a formal reading of the provisions of the Maceda
Law would imply that once a buyer fails to avail of the grace
period granted to him, then either rescission or cancellation of
the contract becomes a matter of right on the part of the seller,
provided he complies with the procedure provided for in the Law,
the Court has interpreted it otherwise.
In McLaughlin v. Court of Appeals,174 the parties had
entered into a contract of conditional sale of real property, with
the stipulated purchase price payable on installments. When the
buyer defaulted in the payment of the installments, a complaint
was filed by the seller in court for the rescission of the deed of
conditional sale, which suit was eventually compromised, with

173
513 SCRA 413 (2007).
174
144 SCRA 693 (1986).
420 LAW ON SALES

the buyer agreeing on a scheduled payment of the balance of

the purchase price. The compromise agreement approved by the
court also provided that in case of failure of the buyer to comply
with the terms of payment, all payments previously made shall be
forfeited in favor of the seller as liquidated damages.
When the buyer failed to pay on the dates provided for in the
compromise agreement, the seller subsequently refused to accept
further payment and eventually filed a motion with the trial court for
the issuance of a writ of execution to declare the rescission of the
contract of conditional sale, and the forfeiture of all payments of the
buyer previously made. The buyer filed a motion for reconsideration
on the order granting the writ of execution, and tendered with the
trial court the balance due to the seller on the sale.
On appeal, the Court upheld the right of the buyer to prevent
the rescission of the contract by his tender of the balance of the
purchase price, based on the provisions of the Maceda Law.
Although there was no doubt that the buyer was no longer
entitled to the benefits of the grace period under the Maceda
Law, the court held that if the motion for the issuance of the writ
of execution is considered as the notice of cancellation under
the Law, the seller could cancel the contract only thirty (30) days
after the receipt of such notice, and then concluded that since the
tender of payment of the balance of the purchase price was made
within said thirty (30) day period, this prevented the cancellation
of the contract of conditional sale.
McLaughlin ruling therefore clearly provides for two basic
doctrines applicable to the Maceda Law. First, although the Law
seem to require rescission and cancellation to be both by notarial
act, McLaughlin would hold notarial act as merely applicable
to rescission, whereas “notice of cancellation” need not be by
notarial act. Second, McLaughlin would hold that even after the
expiration of the grace period provided by the Law, the buyer still
can prevent rescission or cancellation of the contract within the
30-day period when rescission or cancellation is to take effect.
In other words, McLaughlin would provide for two grace
periods: the first grace period is the one provided for expressly
 REMEDIES OF PARTIES 421

by the Law, which is a minimum of 60 days; and the other would

be the period before rescission or cancellation actually takes
effect. Perhaps, the distinction between the two types of grace
period, is that in the statutory grace period, availment of the
right to update the installment payments is without interest
and penalties, even when these are stipulated in the contract;
whereas, in the period prior to the effectivity of the rescission or
cancellation of the contract, the buyer would be liable for and
would have to include in his payments the stipulated interests
and penalties incurred.
The McLaughlin ruling would therefore encourage buyers
of real estate on installments covered by the Maceda Law not
to take advantage of the statutory grace period, because even
with its expiration, they have a jurisprudential grace period which
allows them to prevent the rescission or cancellation of their
contracts even after they have received the demand for rescission
or notice of cancellation, by paying-up the unpaid balance prior to
the expiration of the 30-day period provided in the Maceda Law
for effectivity of the notice of rescission or cancellation.
In Leaño v. Court of Appeals,175 the Court held that in cases
falling under the Maceda Law, the issues as to rescission or
cancellation, breach of contract, tender and consignation must all
give way to the explicit provisions of the Maceda Law that grants
to the buyer a minimum 60-day grace period and the requirement
that notarial notice of cancellation or rescission shall be effective
only after 30-days from service thereof.176
Leaño affirmed the principle that even when the requisite
notice of cancellation is given but the buyer has not been given
the cash surrender value of the payments made, these was still
no actual cancellation of the conditional sale, and the buyer may
still reinstate the contract by updating the account. This is true
even when a decision has been rendered in an ejectment case
which would operate as the required notice of cancellation.

175
369 SCRA 36, Pagtulungan v. Dela Cruz Vda. de Manzano, 533 SCRA 242
(2008)(2001).
176
Reiterated in Villadar v. Zaballa, 545 SCRA 325 (2008); Pagtulungan v. Dela
Cruz Vda. de Manzano, 553 SCRA 292 (2008).
422 LAW ON SALES

The principle was reiterated in Active Realty & Dev. Corp.

v. Daroya,177 which held that the refund of the cash surrender
value is one of the mandatory twin requriements for a valid and
effective cancellation under the Maceda Law, and absence of
which would mean that the contract remains valid and subsisting.
However, in that case, since the lot had already been sold to
an innocent second buyer, the seller was ordered to refund to
the first buyer the actual market value of the lot sold with 12%
interest per annum or to deliver a substitute lot, at the option of
the first buyer.
Olympia Housing v. Panasiatic Travel Corp.,178 held that
the Maceda law recognizes the right of the seller to cancel the
contract but any such cancellation must be done in conformity
with the requirements therein prescribed. The Court held that In
addition to the notarial act of rescission, the seller is required to
refund to the buyer the cash surrender value of the payments
on the property; and that the actual cancellation of the contract
can only be deemed to take place upon the expiration of a 30-
day period following 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.179
(b) To pay in advance any installment or the
full unpaid balance of the purchase price
177
382 SCRA 152 (2002).
178
395 SCRA 298 (2003).
179
Sec. 5, Rep. Act 6552.
 REMEDIES OF PARTIES 423

any time without interest and to have such

full payment of the purchase price anno-
tated in the certificate of title covering the
property.180

Notice that the provisions of Section 6 of the Maceda Law

render nugatory all provisions in loan agreements covering the
financing of residential real estate and condominium units “pre-
termination penalty clauses” whereby any payment ahead to
the scheduled amortization was met with a penalty clause to
compensate the bank or financial institution for the inability of
such pre-payment to earn interest income on the loan.

6. Effect of Contrary Stipulations

Under Section 7 of the Maceda Law, any stipulation in any
contract entered into contrary to the provisions of the Law, shall
be null and void.

7. Maceda Law Cannot Be Availed of by Developer

In Lagandaon v. Court of Appeals,181 the Court held that
the Maceda Law has no application to protect the developer
or one who succeeds the developer, since “the policy of that
law, as embodied in its title, is ‘to provide protection to buyers
of real estate on installment payments.’ As clearly specified in
Section 3, the declared public policy espoused by Republic
Act No. 6552 is ‘to protect buyers of real estate on installment
payments against onerous and oppressive conditions.’”182
Therefore, one who buys the property from the developer and
who steps into the shoes of the seller under the Contract to
Sell cannot claim any right or protection under the Law. If the
Maceda Law has any relevance at all, it is to protect the buyer,
not the developer-seller or his successor-in-interest. The Court
further held that “Section 3(b) of the same law does not grant
petitioner [developer] any legal ground to cancel the contracts

180
Sec. 6, Rep. Act 6552.
181
290 SCRA 330 (1998).
182
Ibid, at p. 345.
424 LAW ON SALES

to sell; rather, it prescribes the responsibility of the seller in case

the ‘contract[s are] cancelled.’”183

CANCELLATION OF JUDICIAL SALE

Where a judicial sale is voided without fault of the purchaser,
the latter is entitled to reimbursement of the purchase money
paid by him. A judicial sale can only be set aside upon the return
to the buyer of the purchase price with simple interest, together
with all sums paid out by him in improvements introduced on the
property, taxes, and other expenses by him.184
—oOo—

183
Ibid.
184
Seven Brothers Shipping Corp. v. Court of Appeals, 246 SCRA 33 (1995).