Module 3-C Lecture Notes

Recto Law

Why is it called Recto Law?

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The Civil Code of 1889 itself was repealed by Republic Act No. 386 which took effect in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. (source)

What are the requisites for the application of Recto Law?

In order that the provisions of Recto Law will apply, it must appear that there is a
contract of sale of:
1. personal property (movable);
2. the price of the sale is payable in installments;
3. there has been a failure of the buyer to pay two or more installments;
4. chattel mortgage has been executed.

Note: applies also to contract to lease with option to buy.

Rights of the seller under the Recto Law

1. Exact (or demand) fulfillment of the obligation, should the buyer fail to pay;(one
payment has defaulted)
2. Cancel the sale, should the buyer's failure to pay cover two or more installments;
3. 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. In this case, the seller
shall have no further action against the buyer to recover any unpaid balance of the
price. Any agreement to the contrary shall be void.

Note: If the seller did not foreclose the mortgage, but rather filed an action to recover
the unpaid balance. Thereafter a writ of attachment and execution was filed and the
judge ordered the sale of property at a public auction. The seller can still recover any
deficiency.
Purpose of the Recto Law

The principal object of the Recto Law is to remedy the abuses committed in
connection with the foreclosure of chattel mortgage. The law prevents the
mortgagee from seizing the mortgaged property, buying it at the foreclosure sale for a
low price and then bringing suit against the mortgagor for a deficiency judgment. The
almost invariable result of this procedure is that the mortgagor finds himself minus the
property and still owing practically the full amount of the original
indebtedness. (Bachrach Motor Co. vs Millan, 61 Phil 409)

Let us try to answer this case problem:

SVC Motor Corporation sold to Boyet a brand new car for the total amount of 2.5 million
pesos. Boyet paid the down payment of P750,000.00, with the rest of the price to be
paid by monthly amortizations/installments for the next 3 years. To ensure payment of
the rest of purchase price, a chattel mortgage was constituted over the car. Because of
the pandemic, Boyet lost his job and was no longer able to pay 5 monthly installments,
and has an outstanding balance of 1.5 million pesos.

1. Is Recto Law applicable? YES

2. What are the available remedies of SVC Motor Corporation? FORECLOSED
3. If SVC Motor Corporation chooses to foreclose the mortgage and sold the car in an
auction sale for price of 1 million pesos, can SVC Motor Corporation collect the
deficiency of 500,000.00 from Boyet? NO
4. If the seller did not foreclose the mortgage, but rather filed an action to recover the
unpaid balance. Thereafter a writ of attachment and execution was filed and the judge
ordered the sale of property at a public auction and it sold for 1 million pesos, can SVC
Motor Corporation collect the deficiency of 500,000.00 from Boyet? YES

After the discussion of Recto Law, let us now discuss Maceda Law.

Maceda Law

Why is the law called Maceda Law?

Realty Installment Buyer Act, otherwise known as Republic Act No. 6552, is called
Maceda Law, because it is named after the main author of this 1972 law, former senator
Ernesto Maceda.

Requisites for the application of Maceda Law

In order that the provisions of Maceda Law will apply, it must appear that there is a
contract of sale or financing of:

1. real property;
- Properties covered include residential condominiums, apartments, houses,
townhouses, and house and lots, among others, but excluding industrial lots,
commercial buildings, and sales of properties to existing tenants. (Section 3)

2. the price of the sale is payable in installments

Purpose of this law

It is hereby declared a public policy to protect buyers of real estate on installment
payments against onerous and oppressive conditions. (Section 2)

Prior to the Maceda Law (Republic Act No. 6552), the seller can cancel the contract and
forfeit all payments made by the installment buyer. Automatic cancellation or
rescission of the contract is tolerated (bawal) if it was a Contract to Sell.

In case of Contract of Sale, the vendor must resort to juridical or notarial act to
rescind the contract. Under the Maceda Law however, a buyer who has paid at least
two (2) years of installments is entitled to the rights as enumerated earlier (2 - a, b,
& c).

The Installment Buyers Protection Act took effect on September 14, 1972. Previous to
that, many installment buyers were easy victims of unscrupulous sellers and developers
who just forfeit all installment payments made by them without the protection provided
by law on these transactions. (source)

(Section 3)
Where the buyer has paid at least two years of installments, what are the rights of
the buyer, in case he defaults in the payment of succeeding installments? 

1. On default payments
- Buyers who default on their payments of installments are entitled to
pay, without additional interest, the unpaid installments due within the total
grace period they have earned. This total grace period has been fixed at the
rate of a one-month grace period for every one (1) year of installment
payments made. However, this right can only be exercised by the buyer once in
every five years of the life of the contract and its extensions.

Grace period
2 years = 2 months
1 year = 1 month

2. On contract cancellation
- If the contract is canceled, the seller shall refund to the buyer the cash
surrender value of the payments on the property, which is equivalent to 50 percent
of the total payments made. After five years of installments, an additional five
 percent for every year of payments will be added, but not to exceed 90 percent
of the total payments made. For this to apply, the actual cancellation of the contract
must take place 30 days after receipt by the buyer of the notice of cancellation .
This notice of cancellation or a demand for rescission at that must be by a notarial
act and upon the full payment of the aforementioned cash surrender value to the
buyer.
- Down payments, deposits or options (included in computation of installments
made) on the contract shall be included in the computation of the total number of
installment payments made.

(Section 4)
Where the buyer has paid less than two years of installments, what are the rights
of the buyer, in case he defaults in the payment of succeeding installments? 

1. On default payments
- the seller shall give the buyer a grace period of not less than sixty days from the
date the installment became due.

2. On contract cancellation
- If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a notarial act .
*Total payments made includes down payments, deposits or options on the contract.

(Section 5)
Can the buyer sell or assign my rights to the property to another person? 

The buyer shall have the right 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 or assignment shall be done
by notarial act.

(Section 6)
Can the buyer to pay off my balance ahead of the due date? Will the buyer be
allowed to do so without incurring the corresponding interests? 

The buyer shall have the right 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.

(Section 7)
What if the contract the buyer entered into are inconsistent with existing laws?
Which will have more bearing? 

Any stipulation in any contract hereafter entered into contrary to the provisions of
Sections 3, 4, 5 and 6, shall be null and void.

Will Maceda Law apply when I pay through a housing loan from a bank?

This is where the common misconception usually lies in terms of the coverage of the
Maceda Law.

To provide a quick background, developers nowadays merely require that the buyer pay
a down payment, which constitutes a percentage of the purchase price. The remaining
balance would then often be shouldered by a financing scheme (usually a housing loan)
that may be provided by commercial banks, Pag-IBIG Fund, by the developers
themselves through their in-house financing schemes, or by other financing institutions.

If you are taking a housing loan from a bank like most people, this means that the
balance that you have to pay the real estate developer has already been paid for in full
by the bank through the loan. In other words, you, in essence, have already paid the
purchase price in full by availing of the loan. The subsequent monthly payments you
now make to the bank are not to pay for the balance of the purchase price, but for the
loan itself, the interests accruing on the principal loan, and the charges that may be or
may have been incurred.

Hence, having been fully paid insofar as the purchase price is concerned, the only
balance you are liable for is that of the loan, and since you are not exactly paying in
installments anymore, considering that the property is technically fully paid for, RA 6552
or the Maceda Law would no longer apply. (source)

Let us try to answer this case problem:

STU Real Estate Developer sold a house and lot to Brenda Corpuz for the amount of
P10 million pesos. Brenda paid a down payment of P1 million pesos, with the rest of the
price to be paid by monthly amortizations/installments for the next 10 years. Because of
her steady income, she was able to complete 5 years of installment payments.
Installment payments totaled to P750,000.00. However, she closed her business
because of the pandemic and is now unable to pay the installments.

1. Is Maceda Law applicable? YES

2. What are the rights available to Brenda? BUYER PAID 2 YEARS OR MORE;
3. What is the total grace period available to her?5 MONTHS
4. If after the grace period, Brenda is still unable to pay her indebtedness to STU Real
Estate Developer and the latter has cancelled the sale. Will Brenda get back the money
she paid? YES 50% OF CASH SURRENDER VALUE (875,000 = 1M + 750k x 50%)
5. What must STU Real Estate Developer do if it cancel the sale?
6. What if Brenda only completed 1 year of installment payments, will your answer
above be the same? no
7. What if Brenda after payment to STU Real Estate Developer of the downpayment,
filed and was approved a housing loan with Pag-ibig, will your answer above be the
same?

After the discussion of Maceda Law, let us now discuss Condominium Act.

Condominium Act

(Source) The shift towards smaller living spaces is mediated by the need for accessible,
manageable, and independent lifestyle engendered by the business industry. But no
matter what the intentions may be, it is important to understand Republic Act 4726 or
the laws governing condominiums.

Condominium Certificate of title (example of construct delivery)

Master right by the time he fully paid the purchase price

Actual delivery
Delivery of condo unit

1. What is a condominium?

A condominium, according to the law, is an “interest in a real property consisting of a

separate interest in a unit in a residential, industrial, or commercial building and
an undivided interest in common, directly or indirectly, in the land in which it is located
and in other common areas of the building.”

In other words, a condominium is a building where sections of which can be owned

individually by a person or, in some cases, a corporation. This can be for either a
residential, industrial, or commercial purpose.

2. Who can own condominiums?

Filipino citizens and corporations can own condominiums. Foreigners, however,

are restricted to owning no more than 40 percent of the total and outstanding capital
stock of a corporation, which must be Filipino-owned and controlled. In addition to that
restriction, foreigners and foreign corporations are, by law, prohibited to own land.

Exception (foreigner can owned if it is )

1. Inherited
2. Condominium unit

3. Who can own condominium units?

Again, Filipino citizens and corporations can own condominium units. This time,
however, foreigners, by virtue of the Condominium Act, are allowed to purchase and
acquire condominium units.

4. What is my stake in a condominium?

As a unit owner, you are, in essence, a co-owner of the condominium, entitled to

such privileges and limited by such restrictions that may follow the title.
5. What forms part of a condominium unit?

Everything within the boundaries of your unit forms part of the same. According to the
law, the interior surfaces of the perimeter walls, floors, ceilings, windows, and doors
form the boundary of your unit. That is, of course, unless the master deed or the
declaration of restrictions prescribed by the condominium corporation or the
administration stipulate otherwise.

6. Am I allowed to alter anything beyond the boundaries of my unit?

Generally, no. However, if the administration allows such alteration or does not prohibit
the same, then you may be allowed to. A thorough read of the house rules or the
contract would be a good idea.

7. What does not form part of the condominium unit?

In most cases, areas that are not found inside the unit are deemed to be excluded
from the unit but the condominium law itself lists aspects of properties that generally
do not form part of the unit. To wit: “bearing walls, columns, floors, roofs, foundations,
and other common structural elements (e.g., lobbies, stairways, hallways, and other
common areas), elevator equipment and shafts, central heating, central refrigeration,
and central air-conditioning equipment, reservoirs, tanks, pumps, and other central
services and facilities, pipes, ducts, flutes, chutes, conduits, wires, and other utility
installations, wherever located.” An exception to the list are those outlets that are
located within the unit.

8. Can I freely sell my unit?

Yes. That is not prohibited in the condominium law. When you sell your unit, however,
you are not just selling the unit itself, you are also selling your interest in the common
areas, as well as your membership and shareholdings in the condominium corporation.

9. Can I freely sell my condominium?

Not exactly. Selling a unit may be simple, but selling a condominium is restricted by
certain rules under the Condominium Act. One of such restrictions is the ownership
requirement. For condominiums where the common areas are co-owned by the owners
of the units, the law requires that the purchaser be either a Filipino citizen or
corporation—a corporation that is at least 60 percent owned and controlled by Filipinos.
For condominiums owned by corporations, the sale will be deemed invalid if such a sale
would result in the foreign interest in the corporation exceeding the limits prescribed by
law, which in this case, is 40 percent. In other words, in both cases, the foreign
ownership in the purchasing corporation cannot exceed 40 percent, otherwise, the sale
would be invalid.

10. Can I mortgage my unit for a loan?

Yes. The condominium law states that “each condominium owner shall have the
exclusive right to mortgage, pledge, or encumber his condominium and to have the
same appraised independently of the other condominium owner is personal to him.”

11. Can the condominium corporation sell the condominium without my consent?

As a general rule, it can. However, if the master deed contains a requirement that the
property should first be offered to the other condominium owners within a reasonable
time before offering it to third parties, then it may not.

Another restriction, however, is one that has been amended to the Corporation Code by
Republic Act No. 7899, which states that, as an owner, you shall not sell, exchange,
lease, or otherwise dispose of the common areas of a condominium without the
approval of the simple majority of the registered owners, subject as well, to the
approval of the Housing and Land Use Regulatory Board (HLURB).

12. The Condominium Act stipulates that the owners can sell the condominium
after 50 years. Does that mean that I will not have any say in the sale?

No, that is not the case. Upon turnover of the unit to you, you become a member of the
corporation that owns the condominium. Hence, your concurrence or dissent on the
matter will count. If, however, it has been decided that the building shall be sold, then
you will be compensated for your appropriate share from the proceeds of the sale.

13. Who owns the common areas in a condominium?

Generally, titles to the common areas are held by a corporation formed for the
purpose. However, the condominium law also states that the common areas are held in
common by the unitholders, in equal share for each unit.

14. What are my rights as a condominium unit owner?

Aside from those already mentioned, the only other right you have as a unit owner is the
right to renovate your unit, for as long as all renovations are done within the
boundaries of your unit. All restrictions on your rights and activities are those that are
stipulated in the declaration of restrictions or on the contract you signed upon the
turnover of the unit to you.

15. I own a condominium building, and I want to amend or revoke the master
deed. May I do so without reservation?

No. The Condominium Act states that you can only do this upon the registration of an
instrument (a formal legal document) executed by a simple majority of the registered
owners of the property. In this case, a simple majority could mean either of the two: a
majority based on per-unit ownership or a majority based on the floor area of ownership.
For condominiums used for either residential or commercial purposes, the former would
apply, while if it is for a mix of both purposes, it is the latter. This requirement also
stipulates that the registered owners must be notified in advance. Evidence of a vote of
a simple majority must also be submitted to the HLURB.

-------------------------

Is Maceda Law applicable in sale of condominium units? 

Yes, under Sec. 3 of R.A. 6552, under 'residential condominium apartments',
provided that the sale transaction is to be paid by installments.

Applicable if:

1. Sale of real property

2. Sale by intallsments
Moreover, Sec. 24 of P.D. 957 provides:

Section 24. Failure to pay installments. The rights of the buyer in the event of this
failure to pay the installments due for reasons other than the failure of the owner or
developer to develop the project shall be governed by Republic Act No. 6552.

Apart from Sec. 24, does the buyer have any other right for refund?
Yes, under Sec. 23 of P.D. 957 provides:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a

subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the
owner or developer, desists from further payment due to the failure of the owner or
developer to develop the subdivision or condominium project according to the approved
plans and within the time limit for complying with the same. Such buyer may, at his
option, be reimbursed the total amount paid including amortization interests but
excluding delinquency interests, with interest thereon at the legal rate.

Module 3-D Lecture Notes

Learning Content and Objectives

Learning Content and Objectives

Module 3-D covers:

5. Extinguishment

This is covered by Chapter 7 of the Law on Sales. Refer to the codal provisions and

read your annotated textbook to better understand this Lecture Notes. The legal basis
(or article numbers) are placed inside parentheses, for your reference.

For this module, the student must be able to:

f. Discuss the extinguishment of a contract of sale:

- Conventional Redemption
- Legal Redemption

To have a complete discussion on the Law on Sales, let us first discuss Actions for
Breach of Contract of Sale of Goods discussed in Chapter 6 of the Law on Sales. 

Actions for Breach of Contract of Sale of Goods

 ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS 

This chapter answers the question, 'what civil action/s can the seller or buyer file, in
case of breach of contract of sale of goods by the other?'

BY SELLER BY BUYER
For specific performance, for delivery
For payment of the price (1595)
(1598)
For damages for non-acceptance of goods For damages, for breach of warranty
(1596) (1599)
For rescission, for breach of warranty
For rescission of contract (1597)
(1599)

Extinguishment of Sale

EXTINGUISHMENT OF SALE

This chapter answers the question, 'How is a contract of sale extinguished?'

1. PLConConComNov (Law on Obligations); Prescription

Because a contract of sale is a special contract, this means that a contract of sale can
be extinguished by the different modes of extinguishment discussed in Chapter 4 of the
Law on Obligations. 

To serve as a review, you can watch the recording of my lecture discussing the Modes
of Extinguishment. 
2. Under preceding chapters in Sales
- Cancellation of sale of personal property payable in installments (1484, Recto Law) 
- Cancellation of sale of immovable property payable in installments (RA6552, Maceda
Law
- Return of goods by the buyer to the seller in Sale or Return or Sale on Trial (1502)
- Seller stopping the goods in transit (1532)
- Unpaid seller reselling the goods (1533)
- Unpaid seller rescinding the contract (1534)
- Rescission of sale when the thing delivered was lacking in area or inferior quality
- Rescission of sale when there is breach of warranty (1567)
- Rescission of sale of animals with redhibitory defects (1580)
3. Redemption (Chapter 7)

a. Conventional Redemption (1601-1618); Pacto de retro; Retracto Conventional

- shall take place when the seller reserves the right to repurchase the thing sold, with
the obligation to comply with the provisions of Art. 1616 and other stipulations which
may have been agreed upon

- Right of seller to reacquire property, as agreed upon, provided that the seller return to
buyer the price paid + expenses of contract, necessary and useful expenses (1616)

- implies a resolutory condition because the compliance by the seller with the
obligations stated, extinguishes the contract of sale

- When to redeem? (1606)

- Equitable Mortgage (1602, 1603)

- When the price of a sale with right to repurchase is unusually inadequate, it shall be
regarded as an equitable mortgage. 
- Equitable mortgage is one although lacking in some formality, form of words, or other
requisites demanded by statute nevertheless reveals the intention of the parties to
charge a real estate as security for a debt, and contains nothing impossible or contrary
to law.

Mortgage Pacto de Retro

does not transfer ownership to the
ownership is transferred to the buyer
mortgagee
the possession is not transferred to the
the possession is transferred to the buyer
mortgagee
 an accessory contract  a principal contract
 if the seller fails to redeem within the period
 if the mortgagee fails to pay the loan,
agreed upon, absolute ownership over the
the mortgage may be foreclosed and
property is vested upon the buyer
sold in an auction sale
 (consolidation of ownership)
b. Legal Redemption (1619)
- It is the right to be subrogated, upon the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing by purchase or dation in payment or
by any other transaction whereby ownership is transmitted by onerous title.

- Instances of legal redemption

1. a co-owner may exercise the right of redemption in case the shares of all the other
co-owner, or any of them, are sold to a third person (1620)
2. adjacent owner has the right of redemption in case a rural land of not more than one
(1) hectare is alienated to the stranger (1621)
3. adjacent owner has the right of legal redemption in case of a piece of urban land
bought for speculation is resold (1622)
4. co-heirs may exercise the right of redemption when any of the heirs sells his
hereditary rights (1088)
5. the debtor shall have the right of legal redemption when a credit in litigation is
assigned 
6. owners of property seized and sold for tax delinquency shall have the right of
redemption (Sec. 321, NIRC)
7. judgment debtors shall have the right of redeeming property sold at public auction
(Sec. 29, Rule 39, Rules of Court)
Note: The right of redemption of co-owners excludes that of adjoining owners. (1623,
last par.)

At the end of this section, try to answer the following questions:

1. TRUE OR FALSE. Conventional redemption can be exercised within 4 years if
without stipulation as to period.

2. Andrea, Bruno and Cheska are co-owners of an undivided parcel of land. Bruno sold
his 1/3 interest to Cheska absolutely. Which is correct?
a. Andrea may exercise her right of redemption on the interest sold by Bruno to
Cheska.
b. Andrea cannot exercise the right of redemption because the sale was made in favor
of a co-owner.
c. The sale made by Bruno to Cheska is void because it was not made in favor of a
stranger.
d. Andrea may redeem only 1/2 of the interest sold by Bruno to Cheska.
3. Mr. Suarez sold his land to Mr. Banzuela with a right to repurchase within ten years
from the date of sale. Despite the lapse of the period of redemption, no such
redemption was made.
a. Ownership of the land was consolidated on Mr.  Banzuela by virtue of the failure to
redeem by Mr. Suarez.
b. Ownership of the land will be consolidated only upon the registration of the sale with
the registry of deeds.
c. Ownership of the land will be consolidated only upon a judicial order.
d. Ownership will be consolidated only with the consent of Mr. Suarez.