Uy, Briana Derica T.
BSA2204(Special Commercial Law)_BCD_2:30-3:30pm
RECTO LAW
The RECTO LAW is based on civil code article 1484-1486. It is also known as “Installment
Sales Law.” The recto law applies to the sale of personal property by instalment, and contracts
purporting to be leases of personal property with option to buy (when lessor deprived the lessee
of the possession or enjoyment of the thing). According to Art. 1484-1486, it states that:
Art. 1484
In a contract of sale of personal property, the price of which is payable in instalments, the vendor
may exercise the following remedies:
1. exact fulfilment of the obligation, should the vendee fail to pay;
2. cancel the sale if the vendee failed to pay two or more instalments;
3. and foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee’s failure to pay two or more instalments. 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.
Art. 1485
It is applied to contracts purporting to be leases of personal property with option to buy, when
the lessor has deprived the lessee of the possession or enjoyment of the thing.
Art. 1486
It states that a stipulation that the installments or rents paid shall not be returned to the vendee or
lessee shall be valid insofar as the same may not be unconscionable under the circumstances.
In simple words, it says that for example, a buyer entered into a contract in buying a car in
installment, but then after a few months he failed to pay the remaining due to health conditions.
So what happens now? Can the buyer still retrieve the money that he paid? The answer is yes. It
will fall under article 1484 wherein to cancel the sale. However, on article 1486, it states
otherwise. The buyer may not be able to get his money back IF there is a STIPULATION on the
contract that states he cannot, or even if he already paid a huge installment leaving with only few
amount to pay.(Art 1486)
For example, Atty. Lucenario sold a car to X in instalment. And, after the few instalments, X
failed to pay 2 consecutive instalments and can’t pay anymore due to insolvency. So, what are
Atty. Lucenario’s remedies? Again, based on article 1484, there are 3 remedies and based on the
problem, there are no chattel mortgage (or basically a mortgage) constituted. So, that leaves us
with 2 remedies-the exact fulfilment (Atty. Lucenario is going to let X pay in full) OR to cancel
the sale. Now, how is the first remedy possible if X is already insolvent? Take note: Being
insolvent doesn’t necessarily mean that X can’t totally pay anymore. He still have his assets, so
X can use that to pay Atty. Lucenario. Although, normally when one is insolvent, it means that
he has more debts than his assets which basically means one does not have enough assets to pay
the debt. And then, the second remedy is absolutely possible since they will just cancel (or also
known as rescission) the sale. Usually, they would just return the things that they received from
each other. But then again, based on Art. 1486, the buyer may not be able to get his
refund/retrieve the money if there is a stipulation in the contract that says so.
Now, how about if there is a chattel mortgage constituted? For example, Atty. Lucenario sold
X a car in instalment. A chattel mortage was constituted on the car to secure the payment. After
few instalments, X, again, failed to pay 2 consecutive instalments and cannot pay anymore due to
insolvency. What are the remedies of Atty. Lucenario? In addition of the first 2 remedies, we
can now apply the last one which is to foreclose on the chattel mortgage on the thing sold. If
Atty. Lucenario chose the 3rd remedy, and the car was foreclosed or sold, and for example if
there is still a remaining unpaid debt of 30,000 pesos on the instalment, and then the car was sold
for 20,000 which lacks of 10,000 php, can Atty. Lucenario recover the unpaid balance of 10k?
Based on the article and Recto law, No. She cannot because she chose the 3rd remedy.
What if Atty. Lucenario sold the car to X, and then a chattel mortgage is constituted but on a
different vehicle? For example, a motor? Then, the 3rd remedy is not applied. Why? Because it is
not constituted on the thing SOLD but rather on a different thing. So, the 3 rd remedy cannot be
an option which leaves you the first 2 remedies.
MACEDA LAW
The MACEDA LAW is based on the R.A. 6552 or also known as the “Realty Installment
Buyer Act”. If Recto Law is concerned more on the rights or “remedies” of the seller, then on
Maceda Law, it is concerned on the BUYER’S RIGHT. And, this is applied on the instalment
sale of residential real (immovable) properties.
Based on R.A 6552:
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.
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.”
My explanation on this will be explained through examples. So for example, Atty. Lucenario
bought a lot from X in installment. The payment’s terms are a downpayment of 100000php and
monthly installment of 10000php for 10 years. If Atty. Lucenario failed to pay a month after
paying 2 years of installment, what are the rights of Atty. Lucenario? So, based n R.A. 6552, if
the buyer has paid at least 2 years, then the following rights in R.A. 6552 are to be followed. If
Atty. Lucenario can still pay, she will be given 2 months GRACE PERIOD from the 2 years that
she has paid (1 month grace period per one year installment payment made) WITHOUT interest.
But, if Atty. Lucenario cannot pay anymore even with the grace period, the contract will be
cancelled, but she will be eligible for a refund of 170,000php. Firstly, downpayments on the
contract is included in the computation of installment payments made. And, for 5 years or less,
only 50% is refunded. Now, since 2 years is equivalent to 24 months, you will now multiply the
24 months with 10,000 monthly installment which will lead you to 240,000, plus the 100,000
downpayment because downpayment is included in the computation which will lead you now to
340000. And, 50% of that 340,000 is will lead you to a refund of 170,000.
Now, what if Atty. Lucenario failed to pay a month after 1 year of installment? What are
Atty. Lucenario’s rights? Since she was only able to pay for 1 year, the right of her being given
60 days grace period with interest will apply if she can still pay.
Another example is what if Atty. Lucenario failed to pay after 8 years of installment? What
are her rights? If she can still pay, she will be given 8 months period without interest if she did
not exercise this right for the last 5 years. If they decided to cancel the contract, Atty. Lucenario
is eligible for a refund of 689,000. (8 years=96 months multiplied by 10,000 based on the
previous example is equal to 960000 plus the downpayment of 100000 will lead you to 1060000.
Now, since Atty. Lucenario has already paid for more than 5 years, there is an additional 5% per
year from the 50%. And since Atty. Lucenario paid after 8 years, that will give you a total of
65%. And, 65% of the 1060000 will give you a total of 689,000. )
PD 957
Presidential Decree 957 is known as the Subdivision and Condominium buyers Protective
Decree. And simply put, it is meant to protect subdivision and condominium buyers from
fraudulent subdivision sellers, or basically sellers selling the condominiums to deceit their
customers. In Sec. 17 of PD 957, it states that:
“UPON THE REQUEST OF THE BUYER AND AT HIS OWN EXPENSE, HIS CONTRACT
TO SELL MAY ALSO BE REGISTERED WITH THE PROPER REGISTER OF DEEDS,
PROVIDED, HOWEVER, THAT IN CASE OF CANCELLATION OR RESCISSION OF
SAID CONTRACT TO SELL FOR ANY REASON WHATSOEVER, SUCH REGISTRATION
OF CONTRACT TO SELL SHALL BE CANCELLED BY THE PROPER REGISTER OF
DEEDS, WITHOUT NEED OF ANY COURT ORDER, UPON EXECUTION BY THE
SELLER OF AN AFFIDAVIT THAT SAID CONTRACT TO SELL HAS BEEN
CANCELLED OR RESCINDED.”
In other words, if a buyer of a condominium paid in full, and is interested in the sale or selling
it, he must apply with the Board of License to Sell. However, the absence of that does not also
mean that it renders a contract void. It does not nullify a contract because the registration and
license is just to prevent a fraudulent scheme. Not having that registration and license is NOT
SUFFICIENT to render a contract void. And the penalties prescribed by PD 957 are the
penalties provided for the violation of its provisions. Penalties applied are for those who violated
the provisions of PD 957. To summarize PD 957, PD 957 is established to protect innocent
buyers who may be victims to the corrupted or dishonest condominium sellers. It is issued that
many condominiums sellers have abandoned their obligations to provide their promises of
providing proper water and lighting systems, drainage, and other basic requirements for the
health and safety of the buyers.
