The Recto Law, which forms part of the Civil Code, covers installment sales of personal property while the Maceda Law governs installment sales of real property.
The Recto Law
The Recto Law comprises Articles 1484 to 1486 of the Civil Code. It was added to the Civil Code to prevent abuses in the foreclosure of chattel mortgages, such as when mortgagee-creditors foreclosed mortgaged property, bought them at a low price (on purpose,) then prosecuted the mortgagor-debtors to recover the deficiencies.
In the event a buyer of personal property defaults by failing to pay two or more of the agreed installments, the seller can do any of the following:
- Demand that the buyer pay (a.k.a. specific performance)
- Cancel or rescind the sale
- Foreclose the mortgage on the property bought (if there ever was a chattel mortgage)
Regarding no. 3, this happens when a person takes a loan to buy something and he mortgages the thing he bought to ensure the creditor that he will pay the loan. Remember: If you choose one remedy, you can’t choose the others. These remedies, believe it or not, are also available to the buyer. You also can’t use all or any of them at the same time. The Recto Law also won’t apply to a straight sale (i.e. a sale where there is a downpayment and the balance is payable in the future in a single payment only.) The seller can also assign his credit to another person, making that person the new creditor.
If the buyer refuses to surrender the items to the seller, he becomes a perverse buyer-mortgagor. When that happens, the seller can recover expenses and attorney’s fees.
The Recto Law also covers leases with the option to purchase.
The Maceda Law, Ra 6552
Do you want to know your rights as a real estate investor, or simply as a real estate buyer who is making installment payments? The first logical step would be to know what law applies and what that particular law contains, which in this case would be the full text of Republic Act No. 6552. More popularly known as the Maceda Law, the RA 6552 follows.
The Maceda Law, RA 6552, is the real estate equivalent of the Recto Law. Like the Recto Law, it also covers financing of sales of real property (which is why mortgages also come in.) It doesn’t apply,however, to the following sales:
- Industrial lots
- Commercial buildings and lots
- Lands under the CARP Law
MACEDA LAW (RA6552) Maceda Law in the Philippines applies to the purchaser of real property by installment payments when the purchase becomes cancelled by a delinquency in payment. It provides the buyer with a right to a refund as a requisite for cancellation of contract due to delinquency when the buyer has paid at least two years. The refund is 50% of total payments; additional 5% per year after 5th year.
To qualify for the Maceda Law, the buyer must have already paid at least 2 years of installment payments.
- The buyer has the right to continue the unpaid installments due without additional interest provided that the buyer must pay within the grace period. The grace period provided is one month for every one year of installments paid.
- The buyer has the right to opt for a refund of the installment payments being made (This includes the down payments, deposits or options on the contract). The buyer is entitled to 50% refund from his total payments made. An additional of 5% refund per year for every 5 years.
If the buyer has paid less than two years installment:
The buyer has the right to continue his payments within a grace period of 60 days.
FULL TEXT OF MACEDA LAW:
REPUBLIC ACT NO. 6552REALTY INSTALLMENT BUYER PROTECTION ACTAN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS
Section 1. This Act shall be known as the “Realty Installment Buyer Act.”
Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions.
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.
(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 fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place 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 and upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.
Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due.
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.
Section 5. Under Section 3 and 4, 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. 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. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and void.
Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be affected thereby.
Section 9. This Act shall take effect upon its approval.