MACEDA LAW:

REPUBLIC ACT No. 6552

AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON

INSTALLMENT PAYMENTS. (Rep. Act No. 6552)

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 canceled, 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.

1. Coverage

Transactions or contracts involving the sale or financing of real estate on

installment payments, including residential condominium apartments.

Not covered:

a. Industrial lots
b. Commercial buildings and lots
c. Lands under the CARP Law

2. Two (2) possible scenarios:

a. Buyer has paid less than two (2) years installment and has defaulted
b. Buyer has paid at least two (2) years installment and has defaulted in the
payment of succeeding installments

3. Rights of buyer under scenario “a”:

a. Payment within grace period

Buyer is given a grace period of not less than sixty (60) days starting from the
date the installment became due to resume paying.

b. Sell or assign rights over the contract

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.

c. Pay in advance any installment or the full unpaid balance of the purchase
price
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.
4. Rights of buyer under scenario “b”:

a. Payment without additional interest

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. Refund of cash surrender value

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
(50%) of the total payments made, and, after five years of installments, an
additional five per cent (5%) every year but not to exceed ninety per cent
(90%) of the total payments made: Provided, That the actual cancellation of
the contract shall take place 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 and upon full payment of the cash surrender value to the buyer.

c. Sell or assign rights over the contract

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.

d. Pay in advance any installment or the full unpaid balance of the purchase
price
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.

5. FULL PAYMENT OF CASH SURRENDER VALUE

For an effective cancellation to take place, the cash surrender value shall be fully
paid. The actual cancellation of the contract can only be deemed to take place
upon the expiry 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 (Olympia Housing vs. Panasiatic Travel
395 SCRA 298). If the buyer fails or refuses to accept the refund, the proper
process of effecting full payment shall be pursued under Article 1249 to 1251 and
Article 1256 of the New Civil Code which define and regulate payment, tender of
payment and consignation, respectively. If the buyer refuses to accept the refund,
the payment shall first be tendered to him. If he unjustifiably refuses to accept it,
the amount shall be consigned in court. Article 1256 of the New Civil Code
states that: if the creditor to whom tender of payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due. Consignation alone shall produce the same effect in the following
cases:(1) When the creditor is absent or unknown, or does not appear at the place of
payment;(2) When he is incapacitated to receive the payment at the time it is due;(3)
When, without just cause, he refuses to give a receipt;(4) When two or more persons
claim the same right to collect;(5) When the title of the obligation has been lost.
6. CASH SURRENDER VALUE INCLUDES DOWN PAYMENT, DEPOSITS &
OPTIONS

Down payments, deposits or options on the contract shall be included in the

computation of the total number of installment payments made (Section 3-b).
The cash surrender value increases but not to exceed ninety (90%) percent of the
total payments made. If the contract is canceled, 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 (Section 4-b).

7. STIPULATION, CONVERSION OR DIMINUTION OF CASH SURRENDER

VALUE VOID

The Law requires that the cash surrender value be actually refunded. A mere
promise to refund is not sufficient. Treating the cash surrender value as unpaid
rentals is proscribed. In Pagtalunan vs. Manzano 533 SCRA 242, it was held
that: “The provision does not provide a different requirement for contracts to sell which
allow possession of the property by the buyer upon execution of the contract like the
instant case. Hence, petitioner cannot insist on compliance with the requirement by
assuming that the cash surrender value payable to the buyer had been applied to rentals
of the property after respondent failed to pay the installments due. “More importantly,
any stipulation that diminishes or negates the right of the buyer to the cash
surrender value is null and void. Thus Section 7 of the Law states that: “Any
stipulation in any contract hereafter entered into contrary to the provisions of Sections 3,
4, 5 and 6, shall be null and void.”

8. COMPLAINT FOR A COURT ORDER TO DEPOSIT THE AMOUNT WITH

A BANK IS NOT EQUIVALENT TO ACTUAL REFUND

A mere attempt to deliver the cash surrender value to the buyer is not legally
compliant. The law requires full payment and actual refund of the cash
surrender value. In Planters Dev. Bank vs. Chandumal, G.R. No. 195619,
September 05, 2012, the Supreme Court held that:. “Thus, it prayed in its complaint
that it be ordered to “deposit with a banking institution in the Philippines, for the
account of Defendants (sic), the amount of Ten Thousand Pesos (P10,000.00), Philippine
Currency, representing the cash surrender value of the subject property; x x x.” The
allegation that Chandumal made herself unavailable for payment is not an excuse as the
twin requirements for a valid and effective cancellation under the law, i.e., notice of
cancellation or demand for rescission by a notarial act and the full payment of the cash
surrender value, is mandatory..”

9. EJECTMENT SUIT PREMATURE IF CANCELLATION IS INVALID

An action for reconveyance or unlawful detainer is not akin to a judicial

rescission. An action for recovery of possession of the real property can be
dismissed as premature unless the cancellation is done in accordance with law.
In Associated Marine Officers and Seamen's Union of the Philippines - PTGWO-
ITF vs. Decena , G.R. No. 178584, October 8, 2012 , it was held that : “Unless
properly cancelled, the buyer’s right to continue occupying the property subject of the
Contract to Sell is still recognized. Lacking proof that the Shelter Contract Award has
 been cancelled in accordance with R.A. 6552, there is as yet no basis to declare
respondent's possession of the house and lot as illegal. “

10. SELLER CAN DEMAND PAYMENTS OF THE BALANCE OF THE

PURCHASE PRICE PLUS INTEREST AND CHARGES.

The technical flaw that the seller may have committed such as the lack of a
notarial rescission and actual refund to the buyer does not excuse the buyer from
paying the balance of the purchase price, interest and penalties. If the buyer
defaults, his obligation to pay the principal, interest and other charges under the
contract still subsists. Notwithstanding the defective notice of cancellation upon
the buyer, he should still comply with the contract. He cannot take undue
advantage of the error committed by the Seller and escape payment of what is
due under the agreement. Thus, in Leano vs. CA, supra, the Supreme Court
ordered the buyer to pay the outstanding balance of the Contract To Sell together
with the interest and charges under the contract even if it declared that the
contract was not validly cancelled according to R.A. 6552. Also in Pagtalunan vs.
Manzano (Ibid) , it was held that : “Instead, the buyer should be allowed to pay the
installments or the purchase price of the property pursuant to the contract to sell within
the grace period. However if the grace period has elapsed, the buyer should pay interest
according to Art. 2209 of the new Civil Code.” The latter case imposed an interest
rate based on Art. 2209 of the New Civil Code because the contract did not
stipulate the interest rate.

11. SELLER CAN NOVATE THE CONTRACT OF DEFAULTING BUYER

A seller can avoid the application of refund under the law if there is a novation
of the old contract which entitled the buyer to a refund. In Fabrigas vs Del
Monte, 476 SCRA 226, the Court had the occasion to rule that if a second
contract to sell involving the same property is executed by the parties, the
subsequent contract governs their relationship if the two contracts cannot
independently exist from each. Thus, it was held that: “Notwithstanding the
improper rescission, the facts of the case show that Contract to Sell No. 2482-V was
subsequently novated by Contract to Sell No. 2491-V. The execution of Contract to Sell
No. 2491-V accompanied an upward change in the contract price, which constitutes a
change in the object or principal conditions of the contract. In entering into Contract to
Sell No. 2491-V, the parties were impelled by causes different from those obtaining under
Contract to Sell No. 2482-V. On the part of petitioners, they agreed to the terms and
conditions of Contract to Sell No. 2491-V not only to acquire ownership over the subject
property but also to avoid the consequences of their default under Contract No. 2482-V.
On Del Monte’s end, the upward change in price was the consideration for entering into
Contract to Sell No. 2491-V. In order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each other. The
test of incompatibility is whether or not the two obligations can stand together, each one
having its independent existence. If they cannot, they are incompatible and the latter
obligation novates the first. The execution of Contract to Sell No. 2491-V created new
obligations in lieu of those under Contract to Sell No. 2482-V, which are already
considered extinguished upon the execution of the second contract. The two contracts do
not have independent existence for to hold otherwise would present an absurd situation
where the parties would be liable under each contract having only one subject matter. “
Query:

1. Under the Maceda Law, the Early Occupant has a grace period of 60 days within
which to effect the payment of the defaulted installment of the Purchase Price.
Under the Addendum, there is no grace period for a payment default but a grace
period of 15 days within which to rectify a breach of any other provision of the
CTS or the Addendum. The Addendum only specifies that “prior written notice”
will be required for “termination of the Contract, including the occupancy by the
Buyer of the Property.”

In this context:

- (a) can the Notice already include a demand to vacate for purposes of the
Addendum/Early Occupancy Program? Is the Early Occupant entitled to the
same grace period within which to vacate? It has been suggested that, as a
matter of prudence, the grace period under the Maceda Law should be the same
grace period given to an Early Occupant under the Early Occupancy Program.
We are concerned that if this were the case, there is the risk that the unit may be
vandalized and that the Early Occupant will be able to occupy the unit rent-free
for 60 days.

- Section 7 of the Maceda Law states that: “Any stipulation in any contract
hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null
and void.” Based on this, it would appear that the 15 day grace period under the
Addendum is contrary to the provisions of the Maceda Law within which a
buyer may effect payment in case he defaults in payment, thus it is null and void.
Even granting arguendo that the said provision is not contrary to the Macedal
Law, as worded in the Addendum, the 15 day grace period refers only to a
condition wherein the occupancy of the Buyer of the Property shall be
terminated in case Buyer fails to observe, perform or comply with any of the
covenants, conditions, representations and warranties under the Contract,
Master Deed, rules and regulations adopted by the Condominium Corporation.

- (b) When can GDC exercise its remedies under the Addendum, i.e.
disconnection of utilities, padlocking, etc? Again as a matter of prudence, it has
been suggested that the disconnection/padlocking should be done only after the
lapse of the 60-day grace period under the Maceda Law. Our concern here is the
same - risk of the unit being vandalized and effectively giving the Early
Occupant a rent-free period of 60 days. So, can disconnection/padlocking be
done earlier, i.e. within and not after the 60-day grace period under the Maceda
Law? Risks?

- It is suggested that the exercise of the remedies under the Addendum be

exercised only after the grace period and after the expiration of the 30 day period
following the receipt by the Buyer of the notice of cancellation or demand for
rescission by a notarial act because it is only then that the right of the Buyer to
occupy the Property will be become illegal.

2. Upon the lapse of the 60-day grace period without the Early Occupant paying
the defaulted amount, another Notice (this time notarized) will have to be
given to the Early Occupant for purposes of complying with the Maceda Law.
Actual cancellation of the sale will take place 30 days thereafter, and in cases
 where the Early Occupant paid at least 2 years of installments, upon payment
of cash surrender value. Does the termination of occupancy have to coincide
with the cancellation of the sale? In cases where payment of cash surrender
value is required, and the Early Occupant refuses/is unable to receive the cash
surrender value payment, GDC will have to consign the payment in court.
Cancellation may be further delayed.

- If the buyer fails or refuses to accept the refund, the proper process of effecting
full payment shall be pursued under Article 1249 to 1251 and Article 1256 of the New
Civil Code which define and regulate payment, tender of payment and consignation,
respectively. If the buyer refuses to accept the refund, the payment shall first be
tendered to him. If he unjustifiably refuses to accept it, the amount shall be consigned in
court. Article 1256 of the New Civil Code states that: if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due. Consignation alone shall produce the
same effect in the following cases:(1) When the creditor is absent or unknown, or does not appear
at the place of payment;(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;(4) When two or more persons claim the
same right to collect;(5) When the title of the obligation has been lost.