Course Code: BAM 242

Module #8

Name: Class number:

Section: Schedule: Date:

Lesson Title: RECTO LAW, MACEDA LAW AND THE Materials:

CONDOMINIUM ACT Student Activity Sheet
Lesson Objectives:
At the end of this module, I can:
1. State pertinent laws applicable to sales of real property and References:
personal property on installment. Regulatory Framework and
2. Understand laws applicable to sale of subdivisions and Legal Issues in Business Part 1
condominiums by Atty. Andrix Domingo,CPA,MBA

Productivity Tip:
Everyone wants to be successful. One way to attain success is to make sure that you
win your everyday battles. No matter how slow, progress is progress. My challenge
for you today is to never let go of this module unless you are done! Happy learning!

A. LESSON PREVIEW/REVIEW

1) Introduction (2 mins)

The Recto Law covers contracts of sale of personal property by installments

(Act No. 4122). It is also applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessees of the
possession or enjoyment of the thing. (PCI Leasing and Finance Inc. vs Giraffe-X Creative
Imaging, Inc., G.R. No. 142618, July 12, 2007)

It forms part of the Civil Code, specifically Article 1484 to Article 1486. It covers sales of
personal property on installment basis.

The Maceda Law is a special law enacted by Congress, particularly

Republic Act 6552 or the Realty Installment Buyer Act, that governs installment
sales of real property. The law declares as “public policy to protect buyers of
real estate on installment payments against onerous and oppressive
conditions.

Presidential Decree 957 or P.D. 957 is otherwise known as “The Subdivision

and Condominium Buyer’s Protective Decree on regulation the sale of
subdivision lots and condominiums, providing penalties for violations thereof”. The primary purpose of this law
is to protect buyers’ welfare from all types of real estate misrepresentation.

In this module, you will learn the pertinent provisions of these laws.
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B. MAIN LESSON

1) Activity 2: Pre-Printed Content Notes (13 mins)

RECTO LAW (INSTALLMENT SALES LAW):

This law covers contracts of sale of personal property by
installments (Act No. 4122). Remember that the thing involved is
personal property. Examples of personal properties are cars,
appliances, gadgets, toys, shoes, clothes, etc.

What are the remedies of vendors in sale of personal property payable in

installment?

Article 1484. In a contract of sale of personal property, the price of which is

payable in installments, the vendor may exercise any of the following remedies:

Remedies in Case of Sale of Personal Property in Installment:

1. Specific Performance: Exact fulfillment should the buyer fail to pay
General Rule: If availed of, the unpaid seller cannot anymore choose other
remedies;
Exception: if after choosing, it has become impossible, rescission may be
pursued

2. Rescission: Cancel the sale if buyer fails to pay 2 or more installments and is deemed chosen when:
a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission
3. Foreclosure: Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee’s failure to pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

These remedies are alternative. Choosing any of the three, you will waive your right to choose other remedies.

MACEDA LAW (REALTY INSTALLMENT BUYER ACT):

Properties Covered by Maceda Law:
1. In all transactions or contracts involving the sale or financing of real
estate on installment payments;
2. Sale or financing of residential condominium apartments.

Not Included in the Coverage of Maceda Law:

1. Industrial lots
2. Commercial buildings and
3. Sales to tenant
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Who are Covered by the Maceda Law:

1. One who has paid at least 2 years of installments in all transactions or contracts involving the sale or financing
of real estate on installment payments.
2. One who has purchased any of the properties enumerated above, but who has paid less than two years of
installments. (under Section 4)

Stated differently, buyers are entitled to a refund, as well as grace periods, so long as they have paid for
at least two years.

On Defaulting
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.

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.

P.D. 957 or THE SUBDIVISION AND CONDOMINIUM BUYER'S

PROTECTIVE DECREE.:

The National Housing Authority shall have exclusive jurisdiction to

regulate the real trade and business.

Owner and real estate dealers shall observe the following procedures
if they want to engage in real trade and business:

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The owner or the real estate dealer interested in the sale of lots or units, respectively, in such subdivision
project or condominium project shall register the project with the Authority by filing therewith a sworn
registration statement.

Owner or dealer to whom has been issued a registration certificate shall not, however, be authorized to
sell any subdivision lot or condominium unit in the registered project unless he shall have first obtained
a license to sell.

No license to sell subdivision lots or condominium units shall be issued by the Authority unless the owner
or dealer shall have filed an adequate performance bond.

However, Section 7 provides that the following are exempted from obtaining license to sell and from
the filing of the performance bond:
a) Sale of a subdivision lot resulting from the partition of land among co-owners and co-heirs.
b) Sale or transfer of a subdivision lot by the original purchaser thereof and any subsequent sale of the
same lot.
c) Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee in the ordinary
course of business when necessary to liquidate a bona fide debt.

SUSPENSION OF LICENSE TO SELL:

The NHA may issue a “Suspension Order” in the following:

Upon verified complaint filed by a buyer of a subdivision lot or a condominium

unit or any interested party, NHA may immediately suspend the owner's or dealer's
license to sell pending investigation and hearing of the case.
The NHA may motu propio or by its own initiative, suspend the license to sell
if, in its opinion, any information in the registration statement filed by the owner or
dealer is misleading. Incorrect, inadequate or incomplete or the sale or offering for sale
of the subdivision or condominium project may work or tend to work a fraud upon
prospective buyers.

LIFTING OF SUSPENSION ORDER:

The suspension order may be lifted if, after notice and hearing, the Authority is convinced that the registration
statement is accurate or that any deficiency therein has been corrected or supplemented or that the sale to the
public of the subdivision or condominium project will neither be fraudulent nor result in fraud. It shall also be lifted
upon dismissal of the complaint for lack of legal basis.

REVOCATION OF REGISTRATION CERTIFICATE AND LICENSE TO SELL:

NHA may revoke the registration and license to sell, either at its own initiative (moto proprio) or upon verified
complaint filed by a buyer, by issuing an order of revocation.

The following are the grounds: It shall appear there is satisfactory evidence that the owner or dealer:

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a) Is insolvent; or
b) Has violated any of the provisions of this Decree or any applicable rule or regulation
of the Authority, or any undertaking of his/its performance bond; or
c) Has been or is engaged or is about to engage in fraudulent transactions; or
d) Has made any misrepresentation in any prospectus, brochure, circular or Other
literature about the subdivision project or condominium project that has been
distributed to prospective buyer; or
e) Is of bad business repute; or
f) Does not conduct his business in accordance with law or sound business principles.

REGISTRATION OF DEALERS, BROKERS AND SALESMEN:

No real estate dealer, broker or salesman shall engage in the business of selling subdivision lots or condominium
units unless he has registered himself with NHA.

REVOCATION OF REGISTRATION AS DEALERS, BROKERS,

SALESMEN:
The following are the grounds for revocation of registration of dealers,
brokers and salesmen”
1) Has violated any provision of this Decree or any rule or regulation made
hereunder; or
2) Has made a material false statement in his application for registration; or
3) Has been guilty of a fraudulent act in connection with any sale of a
subdivision lot or condominium unit; or
4) Has demonstrated his unworthiness, to transact the business of dealer,
broker, or salesman, as the case may be.

BROKER/SALESMAN AS WITNESS TO SALES:

The broker or salesman who negotiated the sale of a subdivision lot or condominium unit shall act as one of
the witnesses to the sales document with an indication of his Certificate of Registration number and renewal
date. If the sale was directly made by the owner or dealer, that fact must be so stated in the sales document.

NON-FORFEITURE OF PAYMENTS:
No installment payment made by a buyer in a new or existing 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 and clearance from the Board desists from
further payment due to the failure of the owner or developer to develop the 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.

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2) Activity 3: Skill-building Activities (with answer key) (18 mins + 2 mins checking)

Exercise I

1. If you are a vendor in a sale of personal property payable in installment and your buyer
failed to pay two consecutive installments as agreed upon, can you cancel the sale? Why?

2. If you cancel the sale, can you change your mind later and instead you now want to exact fulfillment? Why?

3. Under Maceda Law, if the contract is cancelled, how much should the seller refund to a qualified buyer?

3) Activity 5: Check for Understanding (5 mins)

Exercise I. TRUE or FALSE

MACEDA LAW (1-5)

1. Down payments, deposits or options on the contract shall not be included in the
computation of the total number of installment payments made.
2. In case where less than three years of installments were paid, the seller shall give the buyer a
grace period of not less than thirty days from the date the installment became due.
3. If the buyer fails to pay the installments due at the expiration of the grace period, the seller
may cancel the contract after fifteen days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
4. The buyer shall have the right to pay in advance any installment or the full unpaid balance of
the purchase price any time with interest and to have such full payment of the purchase price annotated
in certificate of title covering the property.

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5. If the buyer fails to pay the installments due at the expiration of the grace period, the seller
may cancel the contract after sixty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.

Exercise II. Identification

1. It shall include all residential, commercial, industrial and recreational areas as well as open
spaces and other community and public areas in the project.
2. It refers to the person regularly employed by a broker to perform, for and in his behalf, any or
all functions of a real estate broker.
3. It means the person who develops or improves the subdivision project or condominium project
for and in behalf of the owner thereof.
4. Have exclusive jurisdiction to regulate the real estate trade and business in the Philippines.
5. It shall also include a contract to sell, a contract of purchase and sale, an exchange, an
attempt to sell, an option of sale or purchase, a solicitation of a sale, or an offer to sell, directly or by an
agent, or by a circular, letter, advertisement or otherwise

A.LESSON WRAP-UP

Activity 6: Thinking about Learning

Congratulations for finishing this module! Shade the number of the module that you finished

Did you have challenges learning the concepts in this module? If none, which parts of the module helped you
learn the concepts?

Some question/s I want to ask my teacher about this module is/are:

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Date
Learning Target/Topic Scores Action Plan

What’s the What were your scores in the What contributed to

What module# did youdo? What were the
date today? learning targets? Whatactivities did activities? the quality of your
you do? performance today?
What will you do next
session to maintain
your performance or
improve it?

FAQs

All contracts to sell, deeds of sale and other similar instruments relative to the sale or conveyance of the
subdivision lots and condominium units, whether or not the purchase price is paid in full, shall be
registered by the seller in the Office of the Register of Deeds of the province or city where the property
is situated.

No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of
the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage
loan shall be used for the development of the condominium or subdivision project and effective measures
have been provided to ensure such utilization.
The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if
any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for
the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage
indebtedness secured by the particular lot or unit being paid for with a view to enabling said buyer to
obtain title over the lot or unit promptly after full payment thereof.
Advertisements that may be made by the owner or developer through newspaper, radio, television,
leaflets, circular or any other form about the subdivision or the condominium or its operations or activities
must reflect the real facts and must be presented in such manner that will not tend to mislead or deceive
the public.
The owner or developer shall be answerable and liable for the facilities, improvements, infrastructures or
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other forms of development represented or promised in brochures, advertisements and other sales
propaganda disseminated by the owner or developer or his agents and the same shall form part of the
sales warranties enforceable against said owner or developer, jointly and severally. Failure to comply
with these warranties shall also be punishable in accordance with the penalties provided for in this
Decree.
Real estate tax and assessment on a lot or unit shall be paid by the owner or developer without recourse
to the buyer for as long as the title has not passed the buyer; Provided, however, that if the buyer has
actually taken possession of occupied the lot or unit, he shall be able to the owner or developer for such
tax and assessment effective the year following such taking of possession and occupancy.

When used in this decree, the following terms shall have the following respective meanings:

a) Person. -"Person" shall mean a natural or a juridical person. A juridical person refers to a business
firm whether a corporation, partnership, cooperative or association or a single proprietorship.

b) Sale or Sell. -"Sale" or "Sell" shall include every disposition, or attempt to dispose, for a valuable
consideration, of a subdivision lot, including the building and other improvements thereof, if any, in a
subdivision project or condominium unit in a condominium project.

"Sale" and "Sell" shall also include a contract to sell, a contract of purchase and sale, an exchange, an
attempt to sell, an option of sale or purchase, a solicitation of a sale, or any offer to sell, directly or by an
agent, or by a circular, letter, advertisement or otherwise.

A privilege given to a member of a cooperative, corporation, partnership, or any association and/or the
issuance of a certificate of receipt evidencing or giving the right of participation in, or right, any land in
consideration of payment of the membership fee or dues, shall be deemed a sale within the meaning of
this definition.

c) Buy and Purchase. -The term "Buy" and "Purchase" shall include any contract to buy, purchase, or
otherwise acquire for a valuable consideration a subdivision lot, including the building and other
improvements, if any, in a subdivision project or a condominium unit in a condominium project.

d) Subdivision Project. -"Subdivision Project" shall mean a tract or a parcel of land registered under Act
No. 496 which is partitioned primarily for residential purposes into individual lots with or without
improvements thereon, and offered to the public for sale, in cash or in installment terms. It shall include
all residential, commercial, industrial and recreational areas, as well as open spaces and other
community and public areas in the project.

e) Subdivision Lot. -"Subdivision Lot" shall mean any of the lots, whether residential, commercial,
industrial, or recreational, in a subdivision project.

f) Complex Subdivision Plan. -"Complex Subdivision Plan" shall mean a subdivision plan of a registered
land wherein a street, passageway or open space is delineated on the plan.

g) Condominium Project. -"Condominium Project" shall mean the entire parcel of real property divided or
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to be divided primarily for residential purposes into condominium units, including all structures thereon.

h) Condominium Unit. -"Condominium Unit" shall mean a part of the condominium project intended for
any type of independent use or ownership, including one or more rooms or spaces located in one or more
floors (or part of parts of floors) in a building or buildings and such accessories as may be appended
thereto.

i) Owner. -"Owner" shall refer to the registered owner of the land subject of a subdivision or a
condominium project.

j) Developer. -"Developer" shall mean the person who develops or improves the subdivision project or
condominium project for and in behalf of the owner thereof.

k) Dealer. -"Dealer" shall mean any person directly engaged as principal in the business of buying, selling
or exchanging real estate whether on a full-time or part-time basis.

l) Broker. -"Broker" shall mean any person who, for commission or other compensation, undertakes to
sell or negotiate the sale of a real estate belonging to another.

m) Salesman. -"Salesman" shall refer to the person regularly employed by a broker to perform, for and
in his behalf, any or all the functions of a real estate broker.

n) Authority. -"Authority" shall mean the National Housing Authority.

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